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SELLER DISCLOSURE REQUIREMENTS IN Saint Louis, MISSOURI – MO
St. Louis Real Estate Lawyer – SELLER DISCLOSURE REQUIREMENTS IN MISSOURI
You are thinking of moving, and want to put your Missouri home on the market. Most states have legislation that would require home sellers to give an extensive written disclosure report to potential buyers. Such reports typically identify all material defects in the property, from a broken oven in the kitchen to a leak in the basement. Ironically, the “Show Me State” doesn’t make you show very much.
Relatively few portions of Missouri law involve specific disclosures that home sellers must make to potential buyers. If, however, you use the services of a real estate agent, your agent may need to make certain disclosures to the buyer based upon professional regulations and state law. And there are some good reasons for you to give the buyer a full disclosure report anyway, notwithstanding the lack of explicit legislation requiring you to do so. What sorts of disclosures does Missouri require, and what disclosures might you want to make regardless?
Real Estate Regulations in Saint Louis, Missouri
Missouri has only a few statutes that specifically require a home seller to make disclosures to potential buyers. The most explicit is Missouri Rev. Stat. § 442.606. This statute requires that if the property is or was used as a site for methamphetamine production, the seller must disclose that in writing to the buyer.
Methamphetamine—also known as meth, crystal or ice—is a dangerous and illegal stimulant drug sometimes manufactured in homes. You need to disclose this criminal history only if you “had knowledge of such prior methamphetamine production.” In other words, you need not examine old police records to see whether your house was ever the site of drug production “related to methamphetamine, its salts, optical isomers and salts.”
In a similar vein, the Missouri statute requires you to disclose in writing whether the property was the site endangering the welfare of a child” through “physical injury.” This requirement is unique to Missouri. Again, you must only disclose incidents about which you are aware. For example, if you knew that the prior owner of the home was convicted of abusing a minor child there, this would qualify for disclosure under Missouri Rev. Stat. § 442.606.
Missouri specifically allows you to remain silent on certain matters related to “psychological impacts” on the property, including whether prior occupants of the home had HIV/AIDS or whether the home was the site of a murder, felony, or suicide. (See Missouri Rev. Stat. § 442.600.)
Beyond these specific requirements, Missouri courts will typically enforce caveat emptor clauses in purchase contracts. Under the doctrine of caveat emptor (“let the buyer beware”), judges ordinarily refuse to compensate buyers for home defects found after the purchase unless the seller did something to actively prevent the buyer from inspecting the property to find all of the defects or lied to the buyer directly about the condition of the property.
This equation changes if you use a licensed real estate agent to help sell your home, however. Agents are held to certain standards for honesty under Missouri Rev. Stat. § 339.730.1, which requires that your agent “disclose to any [potential buyer] all adverse material facts actually known or that should have been known by the [agent].”
In other words, licensed real estate agents cannot lie for you without risking their license. For example, if you tell your agent that you want to sell your home quickly because termites are about to eat the last structural beam, this would be the sort of “adverse material fact” about which the agent would be legally obligated to inform the buyer.
Still, an agent “owes no duty to conduct an independent inspection or discover any adverse material facts for the benefit of the [buyer] and owes no duty to independently verify the accuracy or completeness of any statement made by the [seller] or any independent inspector.” Thus, your agent does not need to verify his or her knowledge of your property, or perform any sort of inspection. The agent simply cannot lie for you.
Value of Disclosing More Than the Law Requires to Home Buyers in Missouri
Initially, you may feel fortunate to live in a state that doesn’t force you to reveal damaging defects about your property beyond particular criminal histories. However, you may be surprised to learn that there are short- and long-term benefits and protections associated with making disclosures—and that, as a result, many Missouri sellers choose to affirmatively make such disclosures.
The Missouri Association of Realtors promulgates a six-page disclosure form that you can use. (Also check with your own real estate attorney or agent to see whether he or she has a preferred form for you to use).
The form asks you to check “Yes” or “No” in response to a few dozen questions—divided into 19 categories—about your property. For example, you are asked how old the home is, whether it is the subject of any liens or lawsuits, and whether you are aware of any major problems with various aspects of the house (heating, cooling, electrical, plumbing, and so forth).
Although the form is fairly short, the answers should give potential buyers a fairly comprehensive snapshot of any known defects with your property—at least enough information to know what they should pay particular attention to when commissioning inspections of their own. The form also gives you additional space to explain any of your responses to those questions in greater detail, and encourages you to attach pages if necessary.
So, you might wonder, what is the purpose of filling out this disclosure form if Missouri doesn’t require it?
First, it sets clear expectations regarding the quality and condition of the home, and may smooth negotiations while you’re in escrow. The buyer will see from the start that you are being open and honest about the condition of the house, and will have less reason to react with shock and dismay if and when the inspection report turns up defects. (Imagine, by contrast, if you were to disclose nothing, after which the buyer hires a home inspector who finds unmitigated outbreaks of mold throughout the home. The buyer would be horrified, and would likely try to renegotiate the sale price or demand repairs.)
Second, the disclosure prevents the buyer from later claiming that he or she did not know about a particular defect. Imagine that there is a busted HVAC system, and you do not say anything to the potential buyer. Even if the sale does close successfully, the buyer will quickly discover the problem upon trying to turn on the heat. Any claim that you “didn’t know” about it would be, at best, difficult to believe. The buyer will be angry; not just because you were dishonest by omission, but also because the buyer will now have to face significant repair costs. This creates a risk that the buyer may sue you for breach of contract or fraud.
Of course, you may have strong arguments to beat such a buyer’s lawsuits, especially if your purchase contract included a caveat emptor clause. Still, nothing prevents the buyer from suing you. The buyer may lose the legal arguments, but you will be forced to hire an attorney and engage in the stress of litigation. Making a full and forthright disclosure would ensure that the buyer’s expectations match reality. All of this will help to make sure that your home sale in Missouri goes smoothly.
WELCOME TO THE WORLD OF SELF-BOOKED AND PAID-FOR, ONLINE AUDIO/VIDEO LEGAL CONSULTS. LET POTENTIAL NEW CLIENTS SELF-BOOK AUDIO/VIDEO CONSULTATIONS ON YOUR WEBSITE FOR A FEE FROM ANYWHERE IN THE WORLD.
My name is Mark Roy. I am a real estate lawyer who has been in private practice for 33 years in Kansas City, Missouri.
I have always been very empathetic to the challenges everyday people face when needing affordable, competent, timely legal advice. My experience is that many people do not take the time to obtain affordable, competent, timely legal advice because it is perceived that it will cost too much or take too much time to obtain.
The idea is they just want to ask a few questions to find out what the law is on a particular matter or what they should be thinking about or be prepared for, and not necessarily to hire a lawyer at that moment. This keeps many people from getting simple questions answered and being able to make constructive pro-active decisions.
Answering “simple questions” is worth being compensated for. The hard work was done learning the answers to become a Lawyer.
Lawyers do not want to work for free, and this keeps many lawyers from potentially great new clients simply because “there is no money it”. The thought is “I will turn that over to the staff, or to the phone recorder, and call the ones back that sound promising or worth pursuing”. Meanwhile, by the time you return the message, he has already gotten his question answered and “found a lawyer”.
The traditional way of thinking
The traditional way of thinking when it comes to new clients is that the lawyer, or someone from the lawyer’s staff, needs to be prepared to talk to new clients on the telephone to get basic information, qualify the potential new client, provide answers to basic questions, all with the expectation that the new client will somehow be induced into coming into the office for a paid appointment or a free consultation that may lead to a paid new client.
After many years of answering my phone every day to talk to new potential clients and beating my head against the wall when I realized how much free time I was giving away, I reached out to my web developer with the following question:
How can I eliminate all of the wasted time I spend on the telephone each day giving away free legal advice without taking on additional staff and overhead and without answering my phone, while also being able to work from home or remotely?
My web developer suggested taking my phone numbers off my website. I did not feel comfortable doing that so I changed the message on my telephone to say reach out on our contact us button on our homepage (for general e-mail inquiries that I respond to but do not waste time on – my general response is to BOOK an online consultation) or self BOOK an online AUDIO/VIDEO consultation on my homepage.
My web developer set it up and now I receive bookings every day that go on my calendar that I get automatic notifications of.
I didn’t have to hire a staff to qualify new clients or put dates on my calendar.
The information is provided when the appointment is booked, therefore, I do not have the overhead of having a staff person qualifying new clients or putting dates on my calendar. The fee is paid and deposited into my account automatically and the fee is paid in advance of the appointment.
Automatic bookings notifications that sync with my Google Calendar
Now I get automatic notifications of bookings that go on my Google calendar, all I have to do is make the phone call and talk with the client.
These are 1/2 hours consultations which do not include any document review or 1-hour consultations which do include document review.
The beautiful thing is the fees are earned when the consultation is concluded. The other beautiful thing about it is I can control my calendar so that I pick when consultations are allowed to be booked and that is dynamic so that my available calendar for self-booked and paid Audio/Video bookings can be changed at any time so that appointments can be booked only during predetermined times and days.
But the biggest added value is………….. This system allows me to monetize my time (make money) while talking with new clients for an initial consultation………………………… but these same clients who self-book and are motivated for answers become VERY GOOD CLIENTS.
Monetize your time with 30 minute – 1hr video consults.
So a 1/2 hour or 1-hour self-booked and paid Audio/Video consult turns into much better long-term new client opportunities. For some reason, the new clients that are willing to commit money and put some skin in the game for an initial consultation, are the same new clients that are motivated to “act” and “pay” and not just expect to get free legal advice.
People who plan ahead make great clients.
That has been the most surprising part of this to me is the quality of new clients generated for the matters called on and the value of getting paid as you consult a client on all their options and what direction to go.
I do not need to sell myself other than to provide the benefit of my experience and expertise for a short period of time for a predetermined fee by self-booked and paid Audio/Video Consultation.
I am not committing myself to long-term representation of the client, and all of the automatic notifications the potential new client receives make it clear that the scope of the representation is for a 1/2 hour 1-hour consultation only.
When I hang up the phone I am either done, or I am sending a separate proposal for more expansive representation by a separate agreement, separate and apart from the fees paid for the self booked and paid Audio/Video Consultation.
Automatic Calendar appointments, collection and deposits
Very often if the client retains me for more substantial legal work I credit the client the fee paid for the initial consultation. You also gain the ability with existing clients who regularly need to speak with you to say BOOK a consultation online and all you really have to do is make the call. All the rest takes place automatically (calendar appointment and collection and deposit of money) giving you more TIME and MONEY to do other things you enjoy or want to commit yourself to.
This system is designed to work on your existing website and can act as a supplement to an existing practice, or can be utilized in semi-retirement to do 5 or 10 or 20 hours a week of self-booked and paid AUDIO/VIDEO consults only from anywhere in the world for a monthly subscription service.
Self-booked, paid, Audio/Video consults allow you to accept Stripe (What this site uses), PayPal, or Square for Payments
This self-booked and paid AUDIO/VIDEO consult system with Google and Stripe Synchronization has transformed my legal practice since being implemented 2 1/2 years ago and I want every lawyer who is willing to give it a try to give it a try. This has worked wonders for me. Now I get paid for my time when talking with new clients via self-booked and paid AUDIO/VIDEO consultation and can perform my work remotely, and do not have to deal with scheduling, or collecting fees for new clients.
Best of all, the clients who do hire me are excellent clients who respect my time, are limited in scope, and do not expect anything for free. These same clients have adapted to new technologies and are more knowledgeable on the subject matter being inquired about. They are also not expecting, nor do they desire, to come to my office or meet my staff, or anything for free.
Contact Me to get Booking set up for your WordPress website
Contact me at mark@kcrealestatelawyer.com to discuss the opportunity of installing self-booked and paid AUDIO/VIDEO consulting capabilities on your website with Google Calendar and Stripe synchronization. I will answer your questions and put you in touch with my Partner Sean Wichert, Senior to get this launched on your website and start doing self-booked and paid AUDIO/VIDEO consultations.
REAL ESTATE TAX ASSESSMENT APPEALS
Every two years in Missouri, (odd years), all real estate is reassessed for purposes of determining a fair market value for real estate taxation purposes. The Re-Assessment Notice is mailed to the address on file for mailing at the Assessors Office for the County in which the real estate is located. If you have moved or receive mail at a location different than the property in question, you must contact the Assessors Office in order to ensure they have an up-to-date address for mailing the Assessment Notice. You are presumed to have received the Assessment Notice and it is not a defense to say that you did not receive it if it is found out that you did not update your mailing information with the Assessor’s Office.
The Appeal deadline in recent years has been extended due to Covid, and the volume of appeals. However, whatever appeal you intend to file must be filed by the deadline. If you are unable to file an appeal prior to the expiration of the deadline, you must file a request to file the appeal out of time. In the initial appeal, it is very dispositive to have performed a commercial or residential appraisal prior to the hearing.
If the outcome of the initial appeal is not satisfactory, you retain the right to appeal the decision to the Board of Equalization. In the event you disagree with the decision of the Board of Equalization you have the right to Appeal to the State Tax Commission. You must file an Appeal with the Board of Equalization and have a ruling to be eligible to Appeal to the State Tax Commission.
IN THE EVENT YOU DETERMINE IT WOULD BE IN YOUR BEST INTEREST TO HIRE A PROFESSIONAL REAL ESTATE LAWYER TO ASSIST WITH YOUR REAL ESTATE TAX APPEAL PLEASE CONTACT OUR OFFICE.
Clay County Property Tax Appeal, Jackson County Property Tax Appeal, Platte County Property Tax Appeal, Clinton County Property Tax Appeal, Caldwell County Property Tax Appeal, Ray County Property Tax Appeal, Carroll County Property Tax Appeal, Lafayette County Property Tax Appeal, Johnson County Property Tax Appeal, Cass County Property Tax Appeal.
As a landlord, you may have been approached by someone wishing to lease your property to rent it out on Airbnb or a similar short-term rental platform. Welcome to the world of rental arbitrage!
Rental arbitrage can help you fill vacancies, boost your profits, and liberate you from many tedious tasks that come with running a rental property. However, it can also expose you to many risks, leading to costly bills, legal trouble, and endless headaches.
By knowing the ins and outs of this business model, you can determine whether or not to allow a tenant to engage in this type of business in your rental property.
What is rental arbitrage?
Rental arbitrage is a real estate investment strategy that involves leasing a property and then renting it out to another person. It allows individuals to earn rental income without owning a rental property. As such, it’s a shortcut to being a landlord. And it can yield much higher returns if done right.
Rental arbitrage is most often seen on vacation rental platforms like Airbnb, Vrbo, and HomeAway. Travelers flocked to these platforms to book a place to stay during their trips as they offered accommodation with more privacy, comfort, and amenities at affordable rates compared to hotels.
Eventually, people figured out they could capitalize on the demand for vacation rentals by renting a house, apartment, or other property and subleasing it to travelers. Airbnb, in particular, became the go-to platform for rental arbitrage opportunities, so much so that the term “Airbnb arbitrage” is often used. Tenants who sublease properties on its website are called “Airbnb hosts.”
In general, a tenant pursuing a rental arbitrage strategy won’t be the one living on your property (that would be travelers and other short-term guests). However, they’ll take charge of duties you’d generally assume as the landlord. These include advertising the property, screening tenants, and performing maintenance tasks.
The pros and cons of rental arbitrage
PRO: PROFESSIONAL PROPERTY MANAGEMENT
A well-organized and reputable tenant will oversee cleaning duties, conduct minor repairs, and ensure your rental is well-maintained between guests. As a result, you’ll have more time to attend to other business needs.
Since the tenant’s target market is short-term renters, your property will likely benefit from superior upkeep as well. After all, they have a financial incentive to keep things neat and tidy to attract renters.
PRO: LOWER TENANT TURNOVER
As long as their arbitrage operation is profitable, your tenant will likely stay with you for a long time. You’ll spend less time and effort searching for new tenants and benefit from a steady rental income.
PRO: NO NEED TO FIND AND SCREEN NEW TENANTS
Finding and screening suitable guests can be time-consuming and frustrating. Luckily, your tenant will relieve you of this task as it’ll be their responsibility to source and vet short-term renters. That means you’ll have more time to dedicate to other priorities, like expanding your rental portfolio.
PRO: HIGHER PROFIT MARGIN
If you allow your tenant to run a rental arbitrage business on your property, you could justify a higher rental fee to offset the additional risks you assume. You can also set up an agreement with your tenant to offer you a reasonable share of their profit.
CON: LESS CONTROL
If you’re a hands-on property manager, relinquishing control to your tenant could be problematic. Because you won’t be in charge of most day-to-day decisions, you’ll have fewer opportunities to ensure things run smoothly. You’ll need to depend on your tenant to ensure nothing goes wrong.
CON: HIGHER RISK OF PROPERTY DAMAGE
Rental arbitrage focuses on short-term tenancies, typically lasting one month or less. Due to the high tenant turnover rate, there’s a greater risk of a guest causing damage to your property. Of course, wear and tear will increase as well.
CON: NO PERSONAL VETTING OF SUBTENANTS
Since the host bears responsibility for screening tenants, there’s a risk you could wind up with one or more troublesome individuals living in your rental. Essentially, you’re trusting the host to vet each subtenant competently. If they fail in this responsibility, issues can arise. For example, the subtenant may treat your property poorly.
CON: FLUCTUATING RENTAL INCOME
Your tenant’s rental income may fluctuate widely depending on your property’s location. As a result, they risk falling behind on their rent payments if they don’t generate enough income from short-term guests.
For example, if they cater your rental exclusively to tourists, a significant recession, weather event, or pandemic like Covid-19 could trigger a sharp drop in demand for their services. General seasonality will also affect bookings. Managing rental arbitrage risks
If you’ve weighed the pros and cons of rental arbitrage and have decided to allow it on your property, it’s imperative to do extensive research on your potential tenant. They must be trustworthy, responsible, and competent enough to operate a successful rental arbitrage business.
Here are some of the critical factors to evaluate when screening a tenant who will be acting as a vacation rental host.
WEBSITE
Almost all businesses today have a website, so be sure to check how they present themselves online. A serious host should have a professional, well-organized website with helpful content that conveys a consistent brand. These are clues that suggest the individual or company takes their business seriously.
LICENSING AND REGULATIONS
Running a rental arbitrage business is perfectly legal in Canada. However, each municipality has regulations that govern the operation oF short-term rentals. You’ll need to become familiar with them to ensure you and your tenant aren’t breaking any rules. Otherwise, you may pay a hefty fine or face a lawsuit.
Most municipalities classify short-term rentals as tenancy that lasts 30 consecutive days or less. Tenancy periods that exceed this limit are typically subject to different regulations.
Many cities require a vacation rental host to register their business, obtain a license, and adhere to specific bylaws. Be sure to verify that your tenant meets these requirements. Also, confirm they can legally operate a short-term rental business in your district. Zoning regulations may prohibit short-term rentals in some city regions.
Another thing to note is that some municipalities have a primary-residence requirement. This regulation specifies that the host must live in your rental to operate their arbitrage business legally.
LIABILITY INSURANCE
To shield yourself from lawsuits and costly repair bills, ask your tenant if they have liability insurance. If something goes wrong, their insurance provider will step in to cover any claims involving injuries or property damage.
Some short-term rental platforms sell liability insurance policies, which your tenant may carry. For example, Airbnb offers Air cover for Hsots which provides up to $1 million in coverage. If the tenant has their own insurance policy, that’s a good sign: it shows they’re trustworthy, professional, and reliable.
Suppose your tenant doesn’t have short-term rental insurance. In that case, you can purchase the coverage personally, adding it to your homeowner’s insurance policy.
SOCIAL MEDIA PRESENCE
Like a sleek and professional website, you can garner crucial information about your tenant’s business by examining their social media presence.
Check out LinkedIn, Facebook, Twitter, and other social media websites to see how they present themselves:
Is their brand, messaging, and overall content consistent across each platform (and their website)? Are they active on each platform, posting regular messages, and responding to inquiries? Do they engage with their clients, landlords, and others within their industry? VACATION RENTAL PROFILE
Ask your tenant to provide a link to their public profile on Airbnb, Vrbo, or whichever platform they list their services. Review the profile to assess how well they run their rental arbitrage business. Be sure to look at the following:
Length of business history: The longer they’ve been around, the better, as it indicates they have plenty of experience running short-term rentals. Reviews: Are most customers raving about their service, leaving five-star reviews? If so, that’s a good sign. Level of detail: A profile that provides a lot of helpful information, including plenty of pictures, shows the host has nothing to hide. Response rate and time: Some short-term rental platforms show how quickly the host responds to inquiries. A fast response time indicates punctuality and solid communication, positive attributes you want to see. You can also test their timeliness by emailing or texting them several times and seeing how quickly they respond.
“A Side Letter Agreement is an agreement considered separate and apart from the underlying contract but facilitative of the underlying contract”
A side letter or side agreement or side letter arrangement is an agreement that is not part of the underlying or primary contract or agreement, and which some or all parties to the contract use to reach an agreement on issues the primary contract does not cover or for which they require clarification, or to amend the primary contract. Under the law of contracts, a side letter has the same force as the underlying or primary contract. However, the validity of side letters has been denied by some courts in specific circumstances.[1] Side letters are often used in financial or property transactions or other commercial contracts. They are usually in the form of a letter signed by parties signatory to the primary contract but can also be an oral agreement. As part of a business organization’s governance strategy, side letters should be under similar controls to any other contractual agreement, as they can have significant financial or operational impact, or expose the organization to risks of many types.[2]
Side letters may also be used in relation to private fund contracts, for example, a particular investor may wish to vary the terms of a limited partnership agreement with respect to that particular investor. An investor might be seeking more favorable terms under the contract or might need the side letter to enter the venture under terms to meet regulatory requirements.
Sometimes a loan from your bank isn’t going to meet your needs. Below are ten techniques to get your creative financing wheels turning!
Interest-only loans — If you are an investor looking to purchase, rehab, and sell a property quickly, an interest-only loan may make sense. This financing allows you to make small payments at the beginning of the loan, leaving more money for renovations. When you sell the property for a profit, you can pay off the loan in full, having paid only a small amount of interest.
Seller carry-back — Also known as owner-financing, the seller of the property agrees to finance the property outright. They transfer the title to you in exchange for a promissory note and deed of trust for the full purchase price of the property.
Seller second mortgages — If the buyer can obtain a loan, but not for the full price of the property, sometimes a seller second mortgage is what is needed to make the transaction possible. In this case, the bank mortgage pays the seller for the bulk of the amount owed (for example 80 percent), and the seller deeds the property to the purchaser in exchange for a promissory note for the amount of the balance remaining (in this example 20 percent).
Contract for deed — Similar to seller carry-back, a contract for deed is another method of owner- financing. The difference under a contract for deed is that the seller retains title to the property until the mortgage has been paid in full.
Private mortgages — Private mortgages work like mortgages from a bank, but since the lender is an independent entity, they can follow different guidelines for lending. Interest rates are often higher, but this creative mortgage technique allows more borrowers to qualify for a loan.
Assume payments — If you can find a seller who needs to sell a property quickly and has financing in place, you can assume the seller’s payments, often with little or no down payment.
Short sales — A short sale is when a seller markets the property for less than the amount owed against it and the lien-holder agrees to accept that amount as payment in full. This is often done to avoid the credit implications and costs of foreclosure. Purchasing short sales allows you to purchase property at a discounted price. The resulting immediate equity in the property makes this a wonderful creative financing strategy!
Lease options — A lease option allows the buyer to rent the property for a given amount of time, with a portion of their rent credited toward the purchase price of the home. At the end of the lease, the buyer has the option to purchase the property at the amount agreed upon when the lease was created.
Retirement accounts — Most retirement accounts will allow you to borrow from yourself and repay the funds over time at a low interest rate. What a great creative financing resource!
Loans from family and friends — Friends and family may be willing to invest in your business in the form of personal loans. Talk to the people around you, share your enthusiasm and your needs, and perhaps “Aunt Jan’s” loan will be the next option in your creative financing approach.
INVESTMENT FIRMS MAKING IT DIFFICULT FOR FIRST-TIME HOME BUYERS
Democratic lawmakers are scrutinizing whether the American dream of a suburban home and white picket fence is being seized upon by large institutional investors, costing working people a shot at property ownership.
The House Financial Services Subcommittee on Oversight and Investigations held the virtual panel Tuesday, titled “Where Have All the Houses Gone? Private Equity, Single Family Rentals, and America’s Neighborhoods,” to probe the impacts of firms engaging in what Rep. Al Green, the subcommittee’s chair, dubbed “mass predatory purchasing.”
Shad Bogany, a real estate agent and advocate who testified before the committee, also said that institutional investors are “creating a generation of renters that will miss out on the benefits of homeownership, the ability to create wealth and stabilize communities.”
“Congress, we need you to act,” Bogany said.
Corporate ownership of single-family rental homes — which comprise about a third of the nation’s rental housing stock — has risen significantly since the 2008 financial crisis, when firms swooped in to purchase foreclosed properties, according to a committee memorandum. And the third quarter of 2021 marked the fastest annual increase in corporate ownership in 16 years, the memorandum said. What’s more, as the housing market grew hotter, and prices skewed higher, the investors had the advantage of being able to purchase homes with cash, trumping first-time and lower-income buyers.
‘After an extensive investigation into this practice, we have found that private equity companies have bought up hundreds of thousands of single-family homes and placed them on the rental market.’
— Rep. Al Green, the Democratic chair of the House Financial Services Subcommittee on Oversight and Investigations
In the Atlanta metro area, 42.8% of for-sale homes went to institutional investors in the third quarter of 2021, while investors purchased 38.8% of homes in the Phoenix-Glendale-Scottsdale area during the same period, the committee’s memorandum said.
“After an extensive investigation into this practice, we have found that private equity companies have bought up hundreds of thousands of single-family homes and placed them on the rental market,” Green, a Democratic congressman from Georgia, said during the hearing Tuesday.
“This removes from the housing market homes that might otherwise have been purchased by individual homeowners,” he added. “These corporate buyers have tended to target lower-priced starter homes requiring limited renovation; these homes would likely have been bought by first-time buyers, low- to middle-income home-buyers, or both.”
The homes, Green said, are often located in communities with higher-than-average populations of people of color. For example, the average population of five large investors’ top 20 ZIP codes is about 40% Black, although Black people comprise just 13.4% of the overall population in the U.S. according to to survey data from Invitation Homes, INVH, +0.64% American Homes 4 Rent AMH, +0.42%, FirstKey Homes, Progress Residential, and Amherst Residential, as well as an analysis of government data, according to the committee’s memorandum.
The average population of five large investors’ top 20 ZIP codes is about 40% Black, although Black people comprise just 13.4% of the overall population in the U.S.
Republicans, however, said during the hearing that the Biden administration was to blame for rising prices and accused Democrats of scapegoating Wall Street while attempting to distract people from the worst inflation in decades.
The Federal Trade Commission today took action against online home buying firm Opendoor Labs Inc., for cheating potential home sellers by tricking them into thinking that they could make more money selling their home to Opendoor than on the open market using the traditional sales process. The FTC alleged that Opendoor pitched potential sellers using misleading and deceptive information, and in reality, most people who sold to Opendoor made thousands of dollars less than they would have made selling their homes using the traditional process. Under a proposed administrative order, Opendoor will have to pay $62 million and stop its deceptive tactics.
“Opendoor promised to revolutionize the real estate market but built its business using old-fashioned deception about how much consumers could earn from selling their homes on the platform,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “There is nothing innovative about cheating consumers.”
Opendoor, headquartered in Tempe, Arizona, operates an online real estate business that, among other things, buys homes directly from consumers as an alternative to consumers selling their homes on the open market. Advertised as an “iBuyer,” Opendoor claimed to use cutting-edge technology to save consumers money by providing “market-value” offers and reducing transaction costs compared with the traditional home sales process.
Opendoor’s marketing materials included charts comparing their consumers’ net proceeds from selling to Opendoor versus on the market. Those charts almost always showed that consumers would make thousands of dollars more by selling to Opendoor. In fact, the complaint states, the vast majority of consumers who sold to Opendoor actually lost thousands of dollars compared with selling on the traditional market, because the company’s offers have been below market value on average and its costs have been higher than what consumers typically pay when using a traditional realtor.
The agency’s investigation found that Opendoor also violated the law by misrepresenting that:
Opendoor used projected market value prices when making offers to buy homes, when in fact those prices included downward adjustments to the market values; Opendoor made money from disclosed fees, when in reality it made money by buying low and selling high; consumers likely would have paid the same amount in repair costs whether they sold their home through Opendoor or in traditional sales; and consumers likely would have paid less in costs by selling to Opendoor than they would pay in traditional sales. Enforcement Action
Opendoor has agreed to a proposed order that requires the company to:
Pay $62 million: The order requires Opendoor to pay the Commission $62 million, which is expected to be used for consumer redress. Stop deceiving potential home sellers: The order prohibits Opendoor from making the deceptive, false, and unsubstantiated claims it made to consumers about how much money they will receive or the costs they will have to pay to use its service. Stop making baseless claims: The order requires Opendoor to have competent and reliable evidence to support any representations made about the costs, savings, or financial benefits associated with using its service, and any claims about the costs associated with traditional home sales. The Commission vote to accept the consent agreement was 5-0. The FTC will publish a description of the consent agreement package in the Federal Register soon. The agreement will be subject to public comment for 30 days, after which the Commission will decide whether to make the proposed consent order final. Instructions for filing comments appear in the published notice. Once processed, comments will be posted on Regulations.gov.
NOTE: When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $46,517.
The Federal Trade Commission works to promote competition and protect and educate consumers. Learn more about consumer topics at consumer.ftc.gov, or report fraud, scams, and bad business practices at ReportFraud.ftc.gov. Follow the FTC on social media, read consumer alerts and the business blog, and sign up to get the latest FTC news and alerts.
Our office assists in connecting BUYERS and SELLERS of NON PERFORMING REAL ESTATE ASSETS and NON PERFORMING REAL ESTATE NOTES.
NON-PERFORMING REAL ESTATE ASSETS
Inherited Properties – You and/or your siblings have inherited a property and do not have the time to go through the sales process or do not trust turning your family property over to a real estate agent. You want to close on the house quickly but fairly and with the assurance, that your long-term interests are being professionally represented. (Commercial * Residential)
Rental Properties – Let’s face it being a landlord sometimes is not what it is cracked up to be. Taxes, Insurance, Vacancy Rates, Property Destruction, Vandalism, Municipal Violations, Clean Up Costs, and the cost to relet the property if vacant, or hire an attorney for an eviction proceeding if not vacant. In this case, we can find a buyer and get you out of the property and the expenses associated with regaining possession and rehabbing or making repairs to the property for resale. (Commercial * Residential)
NON-PERFORMING REAL ESTATE NOTES
Promissory Note and Deed of Trust/Mortgage – You may have loaned money on an owner-financed transaction and the borrower has stopped making payments or is otherwise in default on the note. You need your money back, but do not want to pay the legal fees and costs to foreclose on the property and/or do not have the time to go through the legal process to liquidate the asset such as a Quiet Title Action or Petition for Unlawful Detainer involving significant amounts of time and money.
EVERYTHING YOU NEED TO KNOW ABOUT REAL ESTATE CONTRACTS
A real estate contract is a contract between parties for the purchase and sale, exchange, or other conveyance of real estate. The sale of land is governed by the laws and practices of the jurisdiction in which the land is located. Real estate called a leasehold estate is actually a rental of real property such as an apartment, and leases (rental contracts) cover such rentals since they typically do not result in recordable deeds. Freehold (“More permanent”) conveyances of real estate are covered by real estate contracts, including conveying fee simple title, life estates, remainder estates, and freehold easement. Real estate contracts are typically bilateral contracts (i. e., agreed to by two parties) and should have the legal requirements specified by contract law in general and should also be in writing to be enforceable.
Details explained in the contract
In writing
It is a legal requirement in all jurisdictions that contracts for the sale of land be in writing to be enforceable. The various Statutes of Frauds require contracts for the sale of land to be in writing. In South Africa, the Alienation of Land Act specifies that any agreement of sale of immovable property must be in writing. In Italy, each transfer of real estate must be registered in front of a notary public in writing.
The common practice is for an “exchange of contracts” to take place. This involves two copies of the contract of sale being signed, one copy of which is retained by each party. When the parties are together, both would usually sign both copies, one copy of which would be retained by each party, sometimes with a formal handing over of a copy from one party to the other. However, it is usually sufficient that only the copy retained by each party be signed by the other party only. This rule enables contracts to be “exchanged” by mail. Both copies of the contract of sale become binding only after each party is in possession of a copy of the contract signed by the other party—ie., the exchange is said to be “complete”. An exchange by electronic means is generally insufficient for exchange unless the laws of the jurisdiction expressly validate such signatures.
A contract for the sale of land must:
Identify the parties: The full name of the parties must be on the contract. In a sales contract, the parties are the seller(s) and buyer(s) of the real estate, who are often called the principles to distinguish them from a real estate agent who are effectively their intermediaries and representatives in the negotiation of the price. If there are any real estate agents brokering the sale, they are typically listed also as the real estate brokers/agents who would earn the commission from the sale.
Identify the real estate (property): At least the address, but preferably the legal description must be on the contract.
Identify the purchase price: The amount of the sales price or a reasonably ascertainable figure (an appraisal to be completed at a future date) must be on the contract.
Include signatures: A real estate contract must be entered into voluntarily (not by force) and must be signed by the parties.
Have a legal purpose: The contract is void if it calls for illegal action.
Involve Competent parties: Mentally impaired, drugged persons, etc. cannot enter into a contract. Contracts in which at least one of the parties is a minor are voidable by the minor.
Reflect a meeting of the minds: Each side must be clear and agree as to the essential details, rights, and obligations of the contract.
Include Consideration: Consideration is something of value bargained for in exchange for the real estate. Money is the most common form of consideration, but other consideration of value, such as other property in exchange, or a promise to perform (i.e. a promise to pay) is also satisfactory.
Notarization by a notary public is normally not required for a real estate contract, but many recording offices require that a seller’s or conveyor’s signature on a deed be notarized to record the deed. The real estate contract is typically not recorded with the government, although statements or declarations of the price paid are commonly required to be submitted to the recorder’s office.
Sometimes real estate contracts will provide for a lawyer review period of several days after the signing by the parties to check the provisions of the contract and counter propose any that are unsuitable.
If there are any real estate brokers/agents brokering the sale, the buyer’s agent will often fill in the blanks on a standard contract form for the buyer(s) and the seller(s) to sign. The broker commonly gets such contract forms from a real estate association he/she belongs to. When both buyer and seller have agreed to the contract by signing it, the broker provides copies of the signed contract to the buyer and seller.
Offer and acceptance
As may be the case with other contracts, real estate contracts may be formed by one party making an offer and another party accepting the offer. To be enforceable, the offers and acceptances must be in writing (Statute of Frauds Common Law)and signed by the parties agreeing to the contract. Often, the party making the offer prepares a written real estate contract, signs it, and transmits it to the other party who would accept the offer by signing the contract. As with all other types of legal offers, the other party may accept the offer, reject it (in which case the offer is terminated), make a counteroffer (in which case the original offer is terminated), or not respond to the offer (in which case the offer terminates by the expiration date in it). Before the offer (or counteroffer) is accepted, the offering (or countering) party can withdraw it. A counteroffer may be countered with yet another offer, and a counteroffering process may go on indefinitely between the parties.
To be enforceable, a real estate contract must possess original signatures by the parties and any alterations to the contract must be initialed by all the parties involved. If the original offer is marked up and initialed by the party receiving it, then signed, this is not an offer and acceptance but a counter-offer.
Deed specified
A real estate contract typically does not convey or transfer ownership of real estate by itself. A different document called a deed is used to convey real estate. In a real estate contract, the type of deed to be used to convey the real estate may be specified, such as a warranty deed or a quitclaim deed. If a deed type is not specifically mentioned, “marketable title” may be specified, implying a warranty deed should be provided. Lenders will insist on a warranty deed. Any liens or other encumbrances on the title to the real estate should be mentioned up front in the real estate contract, so the presence of these deficiencies would not be a reason for voiding the contract at or before the closing If the liens are not cleared before by the time of the closing, then the deed should specifically have an exception(s) listed for the lien(s) not cleared.
The buyer(s) signing the real estate contract are liable (legally responsible) for providing the promised consideration for the real estate, which is typically money in the amount of the purchase price. However, the details about the type of ownership may not be specified in the contract. Sometimes, signing buyer(s) may direct a lawyer preparing the deed separately on what type of ownership to list on the deed and may decide to add a joint owner(s), such as a spouse, to the deed. For example, types of joint ownership (title) may include tenancy in common, joint tenancy with right of survivorship, or joint tenancy by the entireties. Another possibility is ownership in trust instead of direct ownership.
Contingencies
Contingencies are conditions that must be met if a contract is to be performed.
Contingencies that suspend the contract until certain events occur are known as “suspensive conditions”. Contingencies that cancel the contract if a certain event occurs are known as “resolutive conditions”.
Most contracts of sale contain contingencies of some kind or another because few people can afford to enter into a real estate purchase without them. But it is possible for a real estate contract not to have any contingencies.
Some types of contingencies which can appear in a real estate contract include:
Mortgage contingency – Performance of the contract (purchase of the real estate) is contingent upon or subject to the buyer getting a mortgage loan for the purchase. Usually, such a contingency calls for a buyer to apply for a loan within a certain period of time after the contract is signed. Since most people who buy a house require financing to complete their purchase, mortgage contingencies are one of the most common types of contingencies in real property If the financing is not secured, the buyer may unilaterally cancel the contract by stating that his or her condition has not or will not be satisfied or allow the contract to expire by declining to waive the condition within the specified time period.
Inspection contingency – Another buyer’s condition. Purchase of the real estate is contingent upon a satisfactory inspection of the real property revealing no significant defects. Contingencies could also be made on the satisfactory repair of a certain item associated with the real estate.
another sale contingency – Purchase or sale of the real estate is contingent on a successful sale or purchase of another piece of real estate. The successful sale of another house may be needed to finance the purchase of a new one.
appraisal contingency – Purchase of the real estate is contingent upon the contract price being at or below a fair market value determined by an appraisal. Lenders will often not lend more than a certain percentage (fraction) of the appraised value, so such a contingency may be useful for a buyer.
72-hour kick out contingency- Seller contingency, in which the seller accepts a contract from a buyer with a contingency (typically a home sale or rent contingency where the buyer conditions the sale on their ability to find a buyer or renter for their current property prior to settlement). The seller retains the right to sell the property to another party if he so chooses after giving the buyer 72 hours’ notice to remove their contingency. The buyer will then either remove their contingency and provide proof that they can consummate the sale or will release the seller from their contract and allow the seller to move forward with the new contract.
Date of closing and possession
A typical real estate contract specifies a date by which the closing must occur. The closing is the event in which the money (or other consideration) for the real estate is paid for and the title (ownership) of the real estate is conveyed from the seller(s) to the buyer(s). The conveyance is done by the seller(s) signing a deed for the buyer(s) or their attorneys or other agents to record the transfer of ownership. Often other paperwork is necessary at the closing.
The date of the closing is normally also the date when possession of the real estate is transferred from the seller(s) to the buyer(s). However, the real estate contract can specify a different date when possession changes hands. Transfer of possession of a house, condominium, or building is usually accomplished by handing over the key(s) to it. The contract may have provisions in case the seller(s) hold over possession beyond the agreed date.
The contract can also specify which party pays for what closing cost(s). If the contract does not specify, then there are certain customary defaults depending on the law, common law (judicial precedents), location, and other orders or agreements, regarding who pays for which closing costs.
Condition of property
A real estate contract may specify in what condition the property should be when conveying the title or transferring possession. For example, the contract may say that the property is sold as-is, especially if demolition is intended. Alternatively, there may be a representation or a warranty (guarantee) regarding the condition of the house, building, or some part of it such as affixed appliances, HVAC system, etc. Sometimes a separate disclosure form specified by a government entity is also used. The contract could also specify any personal property (non-real property) items which are to be included with the deal, such as the washer and dryer which are normally detachable from the house. Utility meters, electrical wiring systems, fuse or circuit breaker boxes, plumbing, furnaces, water heaters, sinks, toilets, cabinets, ceiling fans, door handles, plumbing fixtures, and most central air conditioning systems are normally considered to be attached to a house or building and would normally be included with the real property by default.
Riders
Riders (or addenda) are special attachments (separate sheets) that become part of the contract in certain situations.
Earnest money deposit
Although money is the most common consideration, it is not a required element to have a valid real estate contract. An earnest money deposit from the buyer(s) customarily accompanies an offer to buy real estate and the deposit is held by a third party, like a title company, attorney, or sometimes the seller. The amount, a small fraction of the total price, is listed in the contract, with the remainder of the cost to be paid at the closing. In some rare cases, other instruments of value, like notes and/or stock or other negotiable instruments can be used for consideration. Other hard assets, like gold, silver, and anything of value can also be used or in other cases, love (where it can be shown to have existed between the parties). However, the earnest money deposit represents a credit towards the final sales price, which is usually the main or only consideration.
Financial qualifications of the buyer(s)
The better the financial qualification of the buyer(s) is, the more likely the closing will be successfully completed, which is typically the goal of the seller. Any documentation demonstrating the financial qualifications of the buyer(s), such as mortgage loan pre-approval or pre-qualification, may accompany a real estate offer to buy along with an earnest money check. When there are competing offers or when a lower offer is presented, the seller may be more likely to accept an offer from a buyer demonstrating evidence of being well qualified than from a buyer without such evidence.
A land trust is a private agreement, where one party, the trustee, agrees to hold title to property for the benefit of another party or parties, the beneficiary(ies). The one who establishes the trust is the settlor or grantor. The settlor is usually the titleholder to the property before transfer into the trust. The settlor is often the beneficiary of the trust for his/her lifetime. Alternatively, for income property, the beneficiary may transfer beneficial interest in the trust to a limited liability company (LLC).
Thus, the trustee holds the title to the property. If so drafted, the trustee must follow the instructions of the beneficiary. The beneficiary typically has the absolute right to direct and control the trustee and receive all income from the trust. The trust agreement, at the creation of the trust, governs the relationship between the trustee and beneficiary. Thus, the trustee often has no more power than the settlor gives him. Plus he or she has no function other than to do as the trust deed instructs.
Land trusts are most often revocable. Therefore, the trustor may change, modify, or terminate them while he is or she is still alive. The beneficiaries may remove an uncooperative trustee. Since the trustee holds title as a fiduciary, they incur no personal liability for merely being on the title. Nor can the trustee lose the property to his or her personal creditors.
Land Trust Pros and Cons
Land Trust Benefits
There are many land trust benefits. Here are some of the biggest advantages:
Privacy of ownership
Ease of transfer (by assigning beneficial interest in the trust to another party)
Privacy of transfer (assigning beneficial interest is typically not public)
Liability protection (a contingent fee attorney may not accept a case if he/she cannot find assets)
Can use in any US state (not all states have land trust laws, but can use in all states)
Helps to avoid due-on-sale clause (for one to four dwelling units)
Keeps sales price secret
Helps prevent property liens
Can eliminate or minimize probate fees
Land Trust Disadvantages
Whereas land trust have many benefits, there are also some small disadvantages, as follows:
Obtaining financing (may need to place property in personal name to obtain financing and transfer back into the trust afterwards)
Does not protect property from lawsuits (need to include an LLC, for example, as the beneficiary)
How Land Trusts Protect Privacy
The land trust is comprised of two legal documents.
There is a trust agreement between the trustor and the trustee. This document establishes the rights, powers, duties, and obligations of the parties; and
A deed from the trustor to the trustee.
First, you execute the trust agreement. Then, you record the trustee deed. Once completed, the land titles office will no longer reveal to the world that you are owner of the property. In addition, the trust agreement remains private (in your file cabinet at home). Thus, no one need ever know that you retain an interest in the property. That is, the public records will not reveal this information.
Litigators generally have not interest in suing people who have no assets. One of the easiest ways to determine whether or not someone has deep pockets is to search the public records for real estate holdings. For the successful real estate investor, the results of this search could paint a big fat bull’s eye on their backs.
LLC + Land Trust for Asset Protection
First, remember, a land trust is a privacy device, and not a corporate entity. Accordingly, land trusts do not enjoy the liability protections that corporations or limited liability companies may enjoy. If someone slips and falls on the property, the beneficiary can be held liable. That is why we establish a corporation, LLC or limited partnership to serve as beneficiary.
Second, one can usually transfer property into a land trust free from taxation. The internal revenue code addresses this. The federal government will treat the property as if it was owned outright by the beneficiary. See I.R.C. §§ 671- 678. In addition, in many states, the transfer of property by a beneficiary to a revocable trust does not require the payment of any transfer or recording taxes.
Finally, many investors may ask around and find that the attorneys and accountants with whom they come in contact have no idea what a land trust is, or how it works. While this can certainly be frustrating, there is an upside. Think about it. This means that many of the litigators in your community will be unfamiliar with land trusts. A significant number will stop their search for deep pockets at the end of the public records trail – the county recorder’s office.
Benefits of a Land Trust
There are many advantages to owning real estate through a Land Trust:
Privacy of Ownership – Under a Land Trust arrangement, your identity as the legal owner of the real estate is not disclosed to the public or to any third party, except in cases of subpoena or court order.
Ease of Transferability – The beneficiary (or “owner”) of a land trust may be changed without recording a change in the public records.
Avoids Probate – Probate is usually necessary regardless of whether or not one has a will. A Land Trust arrangement, however, allows you to designate succession of ownership. You can do this exactly as you wish, thereby avoiding probate and costly, time-consuming proceedings relating to the property.
Facilitates Multiple Ownership – Where there are multiple owners of a parcel of real estate, a Land Trust can be structured to provide for clear and easy legal division.
You Retain Tax Advantage – You are still eligible for the homeowner’s and senior citizen’s real estate tax exemptions.
Keep in mind, a land trust provides privacy of ownership, not true asset protection. There are tools that can provide true real estate asset protection So, you can use land trust for lawsuit prevention. That is, you so a contingent fee attorney does not readily see that you have “deep pockets” the land trust conceals our ownership. For liquid assets, on the other hand offshore trusts provide the most powerful asset protection. Here are some offshore asset protection examples that you may very well want to know about.
Interest rates, especially the rates on interbank exchanges and Treasury bills, have as profound an effect on the value of the income-producing real estate as on any investment vehicle. Because the influence of interest rates on an individual’s ability to purchase residential properties (by increasing or decreasing the cost of mortgage capital) is so profound, many people incorrectly assume that the only deciding factor in real estate valuation is the mortgage rate. However, mortgage rates are only one interest-related factor influencing property values. Because interest rates also affect capital flows, the supply and demand for capital, and investors’ required rates of return on investment, interest rates will drive property prices in a variety of ways.
Valuation Fundamentals
To understand how government-influenced interest rates, capital flows, and financing rates affect property values, you should have a basic understanding of the income approach to real estate values. Although real estate values are influenced by the supply and demand for properties in a given locale and the replacement cost of developing new properties, the income approach is the most common valuation technique for investors. The income approach provided by appraisers of commercial properties and by underwriters and investors of real estate-backed investments is very similar to the discounted cash flow analysis conducted on equity and bond investments. In simple terms, the valuation starts by forecasting property income, which takes the form of anticipated lease payments or, in the case of hotels, anticipated hotel occupancy multiplied by the average cost per room. Then, by taking all property-level costs, including the financing cost, the analyst arrives at the net operating income (NOI), or cash flow remaining, after all, operating expenses. By subtracting all capital costs, as well as any investment capital to maintain or repair the property and other non-property-specific expenses from NOI, the result is the net cash flow (NCF). Because properties don’t usually retain cash or have a stated dividend policy, NCF equals cash available to investors and is the same as cash from dividends, which is used for valuing equity or fixed-income investments. By capitalizing dividends or by discounting the cash flow stream (including any residual value) for a given investment period, the property value is determined.
Capital Flows
Interest rates can significantly affect the cost of financing and mortgage rates, which in turn affects property-level costs and thus influences values. However, supply and demand for capital and competing investments have the greatest impact on required rates of return (RROR) and investment values. As the Federal Reserve Board has moved the focus away from monetary policy and more toward managing interest rates as a way to stimulate the economy or stave off inflation, its policy has had a direct effect on the value of all investments. As interbank exchange rates decrease, the cost of funds is reduced and funds flow into the system; conversely, when rates rise, the availability of funds decreases. As for real estate, the changes in interbank lending rates either add or reduce the amount of capital available for investment. The amount of capital and the cost of capital affect demand but also supply, capital available for real estate purchases and development. For example, when capital availability is tight, capital providers tend to lend less as a percentage of intrinsic value, or not as far up the “capital stack.” This means that loans are made at lower loan-to-value ratios, thus reducing leveraged cash flows and property values. These changes in capital flows can also have a direct impact on the supply and demand dynamics for a property. The cost of capital and capital availability affect supply by providing additional capital for property development and also affect the population of potential purchasers seeking deals. These two factors work together to determine property values.
Discount Rates
The most evident impact of interest rates on real estate values can be seen in the derivation of discount or capitalization rates. The capitalization rate can be viewed as an investor’s required dividend rate, while a discount rate equals an investor’s total return requirements. K usually denotes RROR, while the capitalization rate equals (K-g), where g is the expected growth in income or the increase in capital appreciation. Each of these rates is influenced by prevailing interest rates because they are equal to the risk-free rate plus a risk premium. For most investors, the risk-free rate is the rate on U.S. Treasuries; these are guaranteed by U.S. government credit, so they are considered risk-free because the probability of default is so low. Because higher-risk investments must achieve a commensurably higher return to compensate for the additional risk borne, when determining discount rates and capitalization rates, investors add a risk premium to the risk-free rate to determine the risk-adjusted returns necessary on each investment considered. Because K (discount rate) is equal to the risk-free rate plus a risk premium, the capitalization rate is equal to the risk-free rate plus a risk premium, less the anticipated growth (g) in income. Although risk premiums vary as a result of supply and demand and other risk factors in the market, discount rates will vary due to changes in the interest rates that make them up. When the required returns on competing or substitute investments rise, real estate values fall; conversely when interest rates fall, real estate prices increase.
Conclusion
Most retail investors, especially homeowners, focus on changing mortgage rates because they have a direct influence on real estate prices. However, interest rates also affect the availability of capital and the demand for investment. These capital flows influence the supply and demand for property and, as a result, they affect property prices. In addition, interest rates also affect returns on substitute investments, and prices change to stay in line with the inherent risk in real estate investments. These changes in required rates of return for real estate also vary during destabilization periods in the credit markets. As investors foresee increased variability in future rates or an increase in risk, risk premiums widen, putting increased downward pressure on property prices.
As you prepare to finance a new home, chances are you’ve come across mortgage pre-approval, mortgage pre-qualification, or possibly even both. So what does it mean to get pre-approved vs. get pre-qualified for a mortgage, and what’s the difference between the two? Let’s take a look.
The Similarities of Pre-Approval and Pre-Qualification
Mortgage pre-approval and mortgage pre-qualification have the same great benefits for anyone considering purchasing a home with a mortgage:
Both can help estimate the loan amount that you will likely qualify for. This can help you save time by starting your home search by looking only at homes that you know will fit in your budget. And it will also prevent the frustration of finding out that the house you wanted to buy is actually out of your budget.
Regardless of whether you have a pre-approval letter or a pre-qualification letter, both can help show sellers that you’re a serious contender when submitting your offer. For a seller to confidently accept your offer, they’ll want to know that you’ll be approved for a mortgage and the home sale will close. A pre-approval letter or a pre-qualification letter can help demonstrate that you have a good chance of being approved for a mortgage for the amount that you’ve offered on the home.
Many sellers will require a pre-approval or pre-qualification letter if you’re planning to get a mortgage. If it’s not required, a pre-approval letter or pre-qualification letter may help your offer stand out. This can be especially helpful in competitive real estate markets.
In addition to the benefits mentioned above, it’s important to remember that neither pre-approval nor pre-qualification is a guarantee that you’ll receive a loan from the lender. You are also not obligated to get a mortgage from the lender who pre-approved or pre-qualified you. While many home shoppers opt to apply for a mortgage with the lender who pre-qualified or pre-approved them, you should always shop around before applying for a mortgage.
The Differences between Pre-Approval and Pre-Qualification
According to the Consumer Finance Protection Bureau, there is often not a lot of difference between pre-approval and pre-qualification. Sometimes, lenders use the terms “pre-qualification” and “pre-approval” interchangeably. And different lenders might have different definitions for each. But generally, here’s how the two may differ.
Pre-qualification is often seen as the first step in the mortgage process, and pre-approval is the next step. With pre-qualification, you’ll supply an overview of your financial history to the lender, including income, assets, debts, and credit score. The lender will review this information to give you an estimate of what you would qualify for. Mortgage pre-qualification doesn’t always require documentation of your financial history; it can often be self-reported. Mortgage pre-approval is very similar, but it usually requires documentation and verification of your income, assets, and debts. And it will often require a credit check, which will result in a hard inquiry on your credit report.
Which One Should You Get?
Since the terms “mortgage pre-approval” and “mortgage pre-qualification” are often used interchangeably, it can be hard to know which one you need. It really depends on how your lender defines the service if you want a credit check or not, and what real estate market you are in. Be sure to ask your lender exactly how he or she defines “pre-approval” or “pre-qualification” (and if it requires a credit check). Then find out from your real estate agent which version has more credibility in your market. That way, when it comes time to make an offer, you’ll have what you need to give sellers confidence that you’ll be approved for a loan.
What can be done when a piece of real estate has two or more owners and one owner wants to sell and the others don’t? This happens frequently in families when real estate is left in a will to heirs, but it also happens when a couple divorces. How do you divide the property? What steps should be taken?
A Petition to Partition may be the answer — once you’ve become familiar with the legal device.
The number of cohabitants in America has been increasing and this has driven the petition to partition to become more common as a remedy to split real estate and personal property.
There are three ways in which property can be owned by more than one individual:
Joint tenants
Tenants in common
Tenants by the entirety (not an option in all states)
The decision of which category to be placed in is made when the property is purchased. With all three types, each owner has the right to occupy the whole. That means that one person is not allowed to choose some rooms and make them off-limits to others living there. Every spot in the property is fully available to everyone who owns the property.
Petition to Partition
Petitioning to partition is a legal right and the process starts with filing a petition with the Clerk of Court. Petition rules vary from state to state. The idea though can be generalized according to the type of existing deed to the property. The owners of Tenants in Common (TIC) and Joint Tenants with Rights of Survivorship (JTWROS) can file.
When dividing up a JTWROS property, all proceeds are divided, equally, among the co-owners. JTWROS deeds give each owner equal stakes — or shares — in the property. No credit is given to either party for any excessive contribution to the purchase price. Credits may be given though for utilities and maintenance costs. Improvements which result in a higher property value may be eligible for credits as well.
When a TIC deed is partitioned, owner shares are reviewed. If a property is owned by three people A, B, and C as tenants in common and A owns 50 percent while B and C each split the other 50 percent down the middle, then a sale of the property for $200,000 would mean A gets $100k and B and C each get $50k. The judge may look at other contributions by the property owners. If A made reasonable renovations and was never reimbursed, the judge may decide to give A a few extra dollars from the award which is given to B and C.
A few states give one tenant the legal option to buy out the other tenant(s) to forestall a forced sale. Other states also allow multiple tenants to merge their shares, forming a majority ownership, which could prevent a forced sale.
When Property Owners Can’t Agree
When someone owns real estate with another individual, or several individuals own property together, a disagreement can come up at selling time. This frequently happens when an individual dies leaving their real estate to several owners.
Utilizing a “Petition to Partition” may solve the standoff to solve this situation. When the process is started, a notification is delivered from the court and given to all owners of the property in addition to anyone who may have a legal interest such as lien or mortgage holders.
The process can be expensive and consume a lot of time. Many owners will retain their own lawyer as anyone who doesn’t want the petition to move forward can file with the probate court seeking to stop the process. Usually, objects are overturned as the other owners maintaining the right to force a sale.
When a family can’t agree on the terms of the sale itself, the petition to partition can force the co-owners to sit and negotiate. This makes a petition to partition the last resort when there is no cooperation among co-owners. Everyone involved must understand that there will be unnecessary time and delay and the final sale price may be considerably lower.
One option many co-owners are turning to is mediation. Working with a disinterested third party, the co-owners sit and try to reach a compromise that is acceptable to everyone. Normally less costly, mediation will have the full force of law behind it once a decision is reached and the documents are filed with the Clerk of Court.
As with many life events where the courts are called to become involved, there can be an upside — as well as a downside.
Pros and Cons
Pros
Beneficial when the co-owners can’t agree to terms
Possibility of recovering unreimbursed costs of major renovations conducted by one of the owners
Cons
Potentially expensive
Time-consuming
Property is normally lost through re-sale and the proceeds are split
2020 Missouri Revised Statutes
Title XXIX – Ownership and Conveyance of Property
Chapter 442 – Titles and Conveyance of Real Estate
Section 442.600 Psychologically impacted real property, defined — disclosure to buyer not mandatory — no cause of action for failure to disclose.
Effective – 28 Aug 1991, 2 histories
442.600. Psychologically impacted real property, defined — disclosure to buyer not mandatory — no cause of action for failure to disclose. — 1. The fact that a parcel of real property, or any building or structure thereon, may be a psychologically impacted real property, or may be in close proximity to a psychologically impacted real property shall not be a material or substantial fact that is required to be disclosed in a sale, exchange or other transfer of real estate.
2. “Psychologically impacted real property” is defined to include:
(1) Real property in which an occupant is, or was at any time, infected with human immunodeficiency virus or diagnosed with acquired immune deficiency syndrome, or with any other disease which has been determined by medical evidence to be highly unlikely to be transmitted through the occupancy of a dwelling place; or
(2) Real property which was the site of a homicide or other felony, or of a suicide.
3. No cause of action shall arise nor may any action be brought against any real estate agent or broker for the failure to disclose to a buyer or other transferee of real estate that the transferred real property was a psychologically impacted real property.
Before your buyers write that earnest money check, find out the purpose of an Earnest Money Deposit (EMD), how to avoid costly mistakes on the home purchase, and ways to lose earnest money.
They’ve found the home of their dreams and you’re working with your buyers to put together a winning offer. Part of that involves writing a fairly hefty check for the Earnest Money Deposit or EMD. You may take the EMD for granted as just part of the process — until a deal falls through, you’re losing earnest money, and those thousands of dollars are in jeopardy. The unexpected can happen prior to closing so it’s vital to explain to your buyers what’s at stake, ensuring that they are not blindsided by the loss of an Earnest Money Deposit.
How can you lose your earnest money deposit? Whether it involves a change of heart or a change in circumstances, here are ten scenarios where you can lose earnest money deposits– and ways to protect your clients.
1. Failing to Meet Deadlines
When your buyers sign a purchase contract, they also agree to a timeline for home inspections, contingencies, and closing. If these major milestones along the road to the closing table don’t happen, the transaction could be put into jeopardy — and that would be the buyer’s fault. If they are unable to fulfill the terms of the contract, the sellers would be justified in working to find another buyer — and keeping the EMD. Make sure you are keeping your buyers moving forward with effective transaction coordination so that they are able to meet their contractual obligations on time.
2. Getting Caught Up In a Bidding War
We’ve all experienced low-inventory markets with multiple offers and bidding wars on every new home that comes on the MLS. In that kind of heated atmosphere, buyers can get scared and desperate — causing them to jump the gun and offer on anything that becomes available. In addition, they may include higher than normal EMD’s to sweeten their offer. If they then realize the house is not for them, they could find themselves losing thousands when they back out of the contract. Make sure you help clients stay steady in the midst of a high-pressure market so that they can avoid this type of mistake.
3. Agreeing to a Non-Refundable Earnest Money Deposit
In some purchase scenarios, especially those involving bank-owned properties or investment properties, a non-refundable EMD may be required in order to show that the buyers are serious about seeing the transaction through. If your clients are confident that their financing and other contract requirements are on track, this may be worth it to them. However, make sure that they have a clear understanding of this part of the contract before they sign that earnest money check and sign away their rights to an earnest money deposit refund.
4. Waiving Contingencies Prematurely
When you are putting together an offer in a multiple offer situation, you may be nervous about asking for too much from the sellers. In that case, you may add fewer contingencies to the sales contract. Alternatively, once you’re under contract, you may mistakenly assume that some of its requirements have been fulfilled and release those contingencies prematurely. In either case, a lack of adequate contingency protection can lead to a canceled contract or a canceled earnest money check– and a lost EMD.
5. Failing to Do Due Diligence
If your client is an investor or just a bargain-hunter, he or she may find a great deal and be eager to act on it, going under contract without a home inspection or other due diligence. In fact, part of the value-add many investors offer is an inspection-free process and fast closing. If the client then finds out that the home has some costly problems, he or she may need to sacrifice that EMD in order to get out of the contract.
6. Failing to Understand “As-Is” Buying
Many ask “when does a buys lost earnest money?” Well, some buyers are eager to take advantage of the money-saving opportunities offered by an As-Is property, assuming that they are handy enough to tackle a fixer-upper. However, major structural damage, termite damage, or other systems failure could result in more than they bargained for. In this case, it is important to have a home inspection contingency with the stipulation that no repairs will be requested. Otherwise, your buyers could find themselves losing their earnest money deposit to back out of the contract.
7. Voiding a Contract Without a Refund
In the case of a mutual decision to void a sales contract, it is important that the full earnest money refund is stipulated clearly in order to ensure that the seller isn’t planning to keep some or all of it. Once the contract is void, the buyer has given up any possible leverage they would have in order to compel the seller to release their deposit.
8. Deciding the Home Isn’t “The One”
Do you get earnest money back? Do you lose earnest money if you back out? For many people, buying a home is a very personal and emotional decision. For this reason, some buyers may decide on second or third viewing that the home just isn’t the right one for them. Since there is no contingency for a change of heart, it is important that buyers know that canceling the contract without cause may result in the loss of the EMD.
9. Developing FOMO Over Another Home
Just like falling in love, some buyers may enjoy the pursuit more than the capture — falling in love with one home until they go under contract, then worrying that the right one is still out there somewhere. Here too, this emotion-based reason for canceling a contract will generally be punished with the loss of the EMD — in part because of the loss in value anticipated by the sellers when they have to put their home back on the market.
10. Bailing on a Transaction for Personal Reasons
Finally, a big reason that contracts fall through — other than a home condition or financing issues — stems from personal issues on the buyer side. An illness, a broken engagement, an unforeseen divorce, a job loss or change — any of these can result in a fundamental shift in planning for the buyer and a genuine inability to see the contract through to closing. In these cases, the sellers are justified in keeping the EMD. In cases of hardship, you may make an appeal on the buyer’s behalf, however the sellers are under no obligation to return the deposit.
What is the Attorney Review Period in a Real Estate Contract?
Many states have statutes that provide for an attorney review period. Kansas and Missouri are not one of those states. In order to have an attorney review period in Kansas or Missouri it must be stated and agreed to in the real estate contract. An attorney review period is highly suggested insofar as this is an opportunity to have a 3rd party not involved in the transaction to review the specific terms of the contract that each party to the contract will be held to. It is better to address these issues early in the transaction rather than to try to negotiate certain terms throughout the duration of the real estate purchase. Many real estate deals that blow up are over terms that could have originally been modified or changed so as to meet the particular needs of the buyer or seller.
When there is an attorney review period clause in a real estate contract, the initial contract that you sign will only be conditional. In most cases, you are only signing to confirm the agreed-upon price and that there will be an attorney review period. The typical attorney review period is 5 business days after signing the initial contract. During the 5-day period, your attorney will need to decide whether to:
Approve the contract;
Reject the contract; or
Entering into negotiations to modify the contract.
The attorney review period allows either the buyer or the seller to modify the contract to meet their particular needs. Your attorney will review the contract and suggest modifications to the contract that would be in your best interest. If the contract is not expressly rejecting or approved, your attorney will make an initial request for modification of the original contract terms within the 5-days allowed for attorney review. Maybe you want to add real estate tax provisions to the contract. You might also want to make the contract contingent on certain terms as well. The attorney review period is the time to make sure all of these terms are added to the contract.
The other party has the right to accept or reject the proposed changes. The other party may also want to counter the proposed changes and make additional proposals. During these negotiations, either party may walk away from the transaction without penalty if there is a failure to agree upon mutually acceptable terms.
If the 5-day attorney review period passes without anyone making proposed changes, then no changes will be made to the initial contract terms. Both parties will be bound by the terms of the initial contract.
CAN A SELLER REQUIRE A BUYER TO USE A PARTICULAR TITLE COMPANY? YES AND NO
Section 9 of the Real Estate Settlement Procedures Act (RESPA) prohibits a seller from requiring a home buyer to use a particular title insurance company, either directly or indirectly, as a condition of sale. Buyers may sue a seller who violates this provision for an amount equal to three times all charges made for the title insurance. However, a seller can offer certain incentives for the use of a particular title company but the seller cannot require that a particular title insurance company be used by the buyer as a condition of the sale unless the seller pays 100% of all title insurance and related title costs. The CFPB has issued guidance stating that if the seller requires the buyer to use a title company (without offering an incentive), unless the seller pays 100% of the title-related costs then the seller has violated RESPA. Even if the seller offers to purchase the owner’s title insurance policy for the buyer, there can still be a violation of RESPA if the buyer must purchase the lender’s title insurance policy.
The term partial release refers to a mortgage provision allowing some of the pledged collateral to be released after there is partial satisfaction of the mortgage contract. When a partial release is put into effect, the lender agrees to release some of the collateral from the contract when the borrower pays off a certain amount on the mortgage. Borrowers must contact their lender to see if they qualify and begin the process for a partial release. Lenders generally complete the paperwork that outlines the segments of property released.
Key Takeaways
A partial release is a mortgage provision that allows some of the collateral to be released from a mortgage after the borrower pays a certain amount of the loan.
Lenders require proof of payment, a survey map, appraisal, and a letter outlining the reason for the partial release.
Borrowers may need to pay fees to the lender and to the county recorder’s office.
A mortgagor may request a partial release when they wish to sell a portion of the land on their property.
Understanding Partial Releases may have a release schedule that outlines how much of the mortgage must be paid off before a partial release is possible. Since it isn’t automatically guaranteed or applied, borrowers must check with their lenders to apply for the provision. Keep in mind, not all lenders permit partial releases, so it’s important for borrowers to check before they apply.
The partial release isn’t an industry standard, so it’s important to check with lenders to see if they accommodate this provision.
Qualifying for a partial release may require the borrower to retain proof of payment on the mortgage. There is usually a minimum period of time that a borrower must pay before lenders will consider an application for partial release—usually 12 months. Many lenders won’t consider applications from borrowers who have recently defaulted on payments, even if the mortgage is brought up to date.
The application process may also require submitting a survey map to show which part of the property is to be released and what will remain under the title with the lender as the mortgage continues to be paid. This means getting an appraisal that outlines the current value of the property retained by the lender. The borrower may also need to include a reason for the request for partial release. For instance, the borrower may want to obtain a release for unimproved land that they don’t intend to make use of and another party wishes to acquire for their development or other purposes.
There may be nonrefundable fees payable to the lender to apply for a partial release. Additional fees may be required by the county recorder’s office to make changes with a mortgage. The approval process for a partial release may take several weeks.
Special Considerations
If the borrower has a deal to sell part of the property, this may be enough to convince the lender to all a partial release. It may still be necessary to offer some incentive to the lender, such as supplemental compensation to secure the partial release. Throughout the transaction, the lender will want to preserve their loan to value ration of the collateral. Part of the requirement for such an agreement could be to pay down the outstanding principal on the mortgage.
When drafting the sale of a portion of a property, the seller must also furnish documentation to allow for the partitioning of the land. That can include conducting a title search to show any and all liens on the property, as well as other records and statements that show the remaining mortgaged property is still occupied.
MULTIPLE STRUCTURES ON ONE PARCEL A PROBLEM FOR HOME SELLERS
MULTIPLE STRUCTURES ON ONE PARCEL A PROBLEM FOR HOME SELLERS
“We have a beautiful home with 5 acres, and there is a second smaller structure on the property. We have been trying to sell since 2008 with no bites until recently, when a buyer appeared. We lost the sale, however, because the bank refused to finance two structures on one parcel… Any suggestions?”
Yes, split your parcel into two parcels, each with a structure, and sell them separately.
Two structures on one parcel is a big problem for the owner trying to sell it because potential buyers will have difficulties getting financed. If the second structure is a habitable unit, the question arises of whether the buyer will rent it out. Under the rules, such a buyer is an investor rather than a permanent occupant. Investors are subject to more strict underwriting rules than permanent occupants, and pay more for their mortgage.
If the second structure is some kind of an appendage to the main house, such as a barn or recreation facility, a potential purchaser will face a different problem. An appraisal of the property will be based on the assumption that the second structure has no value, which means that the loan amount will be smaller and the required down payment will be larger.
Home appraisals are based primarily on “comparables”. These are recent sale prices of homes that are similar to the property being valued. But a parcel with two structures will not have any comparables, forcing the appraiser to ignore the second structure. The appraisal will therefore undervalue the property as a whole.
The problem posed by two structures on one parcel will seldom arise in connection with very expensive homes, because the margin of error in appraisals is very large even without the complication posed by multiple structures, and eligible buyers will not need much if any financing. But the lower the price range within which the property falls, the more are potential buyers dependent on financing a major portion of the price, and the greater is the penalty posed by multiple structures.
With recent appreciation in real estate, we are seeing more clients interested in 1031 exchanges. These exchanges (often called “like-kind” exchanges) can be complex. But as long as you follow the rules, it is a great way to defer capital gains on real estate with substantial appreciation.
1031 Exchange
First of all, most real estate investors understand that a big tax bill can follow the sale of appreciated real estate held for investment purposes. When appreciated real property is sold, the profits from this sale—termed capital gain—are taxed as ordinary income (a tax rate of up to 39.6%) if the property is held for less than one year, or taxed at a more favorable rate of 15% (subject to certain exclusions) if held for a period of time longer than a year. However, Section 1031 of the Internal Revenue Code (“IRC”) allows for the deferral of capital gains tax if the proceeds of the sale are used to acquire a new property (or properties).
There are certain criteria that must be met in order for the taxes to be deferred:
The investor must obtain a “like-kind” replacement property. The definition of “like-kind” property provided by the IRC is very broad. Essentially all real property is like-kind (when applied to investment and exchange), allowing for the exchange of land with a commercial building, apartment buildings being exchanged with a single rental property, etc. The key is that they are held for investment purposes. This includes all real property within the United States; any purchase of property outside of the U.S. is not considered “like-kind”. The investor must not receive cash. Any cash received by the investor will be considered taxable boot. In addition, anything received in exchange for the property that is not considered “like-kind” is labeled boot. This includes private use property including cash, securities, debt relief, notes, etc. It is important to note that if the real estate investor receives a debt reduction, this amount will be considered “boot” and will be taxable to the investor. In order to avoid any taxable event, the investor must buy a replacement property that is of equal or greater value than the relinquished property. They also must invest all of the net proceeds from the sale of the original property and obtain debt that is equal or greater on the new investment property.
Qualified Intermediary or Accommodator
Before going into descriptions of the types of exchanges, there is an important term that should be understood in the exchange process. A Qualified Intermediary is often used in the process of these exchanges and acts as sort of a “middle man.” The real estate investor typically will enter into a 1031 exchange agreement with the qualified intermediary.
During the sales process, the intermediary will basically acquire the property from the investor (or seller) and transfer it to the new buyer. The proceeds from the disposition of the relinquished property will go directly to the qualified intermediary and not the seller. The real estate investor will then identify the replacement property and the qualified intermediary will acquire the property and transfer it to the investor. This is the standard role of the qualified intermediary.
Types of Exchanges
There are various types of exchanges: delayed exchange (the most common), simultaneous exchange, and reverse exchange (the most complicated of the exchange methods, and least common). Let’s take a closer look at the types:
Delayed Exchange. In a Delayed Exchange, a qualified intermediary is used to transfer the investor’s properties and proceeds. An Exchange Agreement is made between the investor and qualified intermediary, and the investor’s rights in a sales contract are transferred to the intermediary. The intermediary effectively becomes the seller and transfers the relinquished property to the buyer. The intermediary retains the proceeds from the sale and uses these funds to purchase the investor’s new replacement property. The new property is then transferred to the investor and the exchange is complete. We will discuss the specifics below. Simultaneous Exchange. This type of exchange occurs when the relinquished property and the replacement property are transferred at the same type (simultaneously). It is typically recommended that a qualified intermediary be used to make sure that the transaction is consummated correctly. Reverse Exchange. This type of exchange occurs infrequently. They typically utilize a “holding” company that is an entity established by a qualified intermediary. The real estate investor utilizes the holding company to “hold” the relinquished or the replacement property. Because of the complexity, you should ensure that you work closely with an experienced exchange professional. Delayed Exchange
Considering the delayed exchange is the most common type, it deserves a closer look. It is imperative that the rules for the exchange are meticulously followed. The property investor has just 45 days from the close of escrow on the relinquished property to identify potential replacement properties. After the replacement properties have been identified, the real estate investor has 180 days to close escrow on the replacement property (or properties). Again, the qualified intermediary acquires the replacement property with the proceeds from the sale of the relinquished property and transfers the replacement property to the investor.
An important point to note is that the real estate seller must put a clause in the real estate contracts that stipulate that all applicable parties to the contracts must cooperate in the 1031 exchange process. Once the investor has entered into an agreement with a buyer to purchase the property it will be placed into escrow. The investor will then typically enter into an exchange agreement with the qualified intermediary that will allow for the intermediary to become the “substitute seller.”
The 45-Day Rule
Let’s take a closer look at the first timing issue for a delayed exchange. The investor must close escrow on a replacement property or identify potential replacement properties within 45 days from the date of transfer of the exchanged property. The rule is satisfied if the replacement property is received before the 45 day expiration period.
If the replacement property is not acquired within 45 days, the properties identified must be documented by a written document that is signed by the seller and delivered to the qualified intermediary. This notification must include a description of the replacement property, which will typically include the legal description and street address.
However, there are limitations on the number of potential replacement properties. The investor can identify more than one property, but needs to consider the following restrictions:
Three-Property Rule. This rule allows the investor to identify any three properties regardless of their values; 200% Rule. The investor can identify any quantity of properties so long as the combined aggregate market value of the properties does not exceed 200% of the combined aggregate market value of all of the exchanged properties; and 95% Rule. This allows for any number of replacement properties so long as the fair value of the properties received by the end of the exchange period is at least 95% of the combined aggregate fair value of all potential replacement properties identified.
Please realize that the IRS just requires written notification within the 45-day window. However, in practice, the investor may want to have a sales contract in place by the end of the 45 day period. After the expiration of the 45-day window, the investor can no longer acquire any other property that was not previously identified. In addition, failure to submit the identification letter will cause any exchange agreement to otherwise terminate and the qualified intermediary will remit any unused funds to the investor. This will trigger capital gains tax.
The 180-Day Rule
As discussed previously, the investor has 180 days to close on a replacement property. The replacement property must be closed and the exchange completed no later than the earlier of: (1) 180 days after the transfer of the exchanged property; or (2) the tax return due date (including extensions) for the tax year in which the relinquished property was transferred. No provision or rule exists for the extension of the 180-day rule for hardship or any other situation.
Summary
The rules for 1031 exchanges can be complex, so make sure that you utilize a competent qualified intermediary. In addition, a knowledgeable CPA and attorney can help you navigate all the rules and requirements. Considering the benefits of the tax-deferred exchange, it can be a wonderful tax planning tool.
Since most builder contracts favor the builder, you need to read them carefully and have your attorney review the contract as well. Before you sign anything, educate yourself and don’t rush into anything. The following issues are ones that are commonly unaddressed and can cause you problems.
You should be aware of these and, where possible, try to negotiate a more favorable contract addressing these issues to protect your interests. Your ability to do so is often a function of whether you are operating in a buyer’s market or a seller’s market. As a minimum, you need to understand the risks you are undertaking.
Common Issues for New-Home Buyers
The House is Not Delivered on Time
Builder contracts are notorious for allowing builders to deliver projects past the promised deadline without any penalties. Delays are a common occurrence, yet the home buyer does not generally does not have a right to recover damages if the builder is late in finishing the home.
Many times the buyer has made plans to vacate their existing residence and when the builder does not finish the home as promised, it creates a myriad of financial problems for the home buyer.
Solution
Negotiate some type of penalty if the builder does not complete the home within a reasonable time from the date promised.
Loss of Deposit Money
Another issue that comes up frequently is deposits and advance payments made to the builder. Builders commonly ask for these advance fees prior to the house being completed. They can add up to substantial amounts of money. The money is supposed to go towards the payment of materials and sub-contractors. What happens many times is the builder has a cash flow problem and uses the funds from one project to finish another. Then when it gets down to your project, they have run out of funds and you are subject to mechanics liens for unpaid bills.
Most builder contract either have no financing contingency or very vague and confusing ones. Nor, unless FHAS or VA financing are involved is there generally an appraisal contingency. This means that as to the absence of a financing contingency that you may lose your deposit even if you do not qualify for financing when the house is built (by which time rates and lending conditions may have changed) and with respect to the absence of an appraisal contingency means that you will have to make up the difference in cash if the property does not appraise high enough to support the originally anticipated loan.
Solution
Before you agree to hand over a large sum of money to your builder, you should request that the money be placed in an escrow account and that you be provided with copies of paid receipts to make sure the money is going where it is supposed to. Condominium builders are required by law to escrow deposit funds but single family home builders are not.
Another way to protect yourself is to buy an owner’s title insurance policy protecting with protection against mechanic’s liens.
Make sure that there is a real financing contingency and a valid appraisal contingency on the contract.
Builder Retains Reservations of Rights
Many construction contractors allow the builder to retain the right to create easements across your property.
Solution
In order to avoid this dangerous situation, you should negotiate upfront exactly what easements may be allowed on your property to avoid problems later after you move in.
Bad Workmanship or Incomplete Work
Typical builder contracts do not protect the purchaser from incomplete work or bad workmanship after the purchaser has paid the contractor the final payment.
Solution
Smart purchasers should negotiate with the builder that funds be set aside in escrow to cover incomplete work or bad workmanship even if the seller is able to obtain a certificate of occupancy. If the builder receives all the money before your punch list is complete, you have no leverage against getting the work corrected or completed.
Legal Protection for Purchaser
The majority of builder contracts provide a financial incentive for the purchaser to use the builder’s attorney as the settlement agent or closing agent.
Solution
You should hire your own attorney to protect your interests. At least have someone monitor the process. This way you do not forfeit any incentives built into the contract contingent on using the builder’s title company or attorney for processing the settlement.
Contract Remedies for Breach
Generally, the builder contracts only provide for the buyer to get their deposit back with no provision for monetary damages. Sometimes, they do not even provide for interest on your own deposit money. Conversely they often contain an option for the builder to either retain the deposit monies as liquidated damages or chose to pursue actual damages in the event the market value of the unit has declined.
Solution
In order to protect yourself, be sure to negotiate as many contract remedies as possible in case the builder breaches the contract. Just getting back your deposit money may not be good enough to cover losses incurred as a result of the builder’s breach.
Consult with your real estate attorney first to find out what your legal remedies and liabilities are before signing the builder contract.
Builder contracts are mostly one sided favoring the builder. It is your responsibility to educate yourself and to understand the contract terms and their impact upon you. If you are buying a new home from a new home builder, you should consult with a real estate attorney before signing the contract and/or insert a contingency in the contract that is contingent upon the review and approval of your attorney to protect your interests.
Is it Too Late to Talk to a Lawyer?
Sometimes buyers find themselves in the difficult position of having to seek counsel after a contract has been executed, either because they are unable to close due to change in financial condition or because delays in completion have caused the purchase to no longer be financially viable. It is especially important to seek counsel as to your rights and liabilities at the earliest signs of trouble.
Complexities of Real Estate Contracts Require an Experienced Attorney
Builder contracts as a whole, or at least some of the more onerous provisions, may not be valid and enforceable. State laws governing home owner associations often require specific disclosures to be made, failure to comply with which, may render the contract voidable or subject to cancellation. Similarly, federal laws governing large projects (over 100 units) subject builders to very complex contract disclosure requirements which builders often try sidestep and in so doing, they may create a legal mechanism for buyers to cancel the transaction.
These laws also require that builders not unduly limit remedies, restrict the forfeitable deposit to a certain percentage of the purchase price, and do not allow buyers to waive the right to pursue specific performance. Very few attorneys, however, are familiar with the intricacies of the Interstate Land Sales Full Disclosure Act.
3 Different Types of Commercial Real Estate Leases
There are three basic types of commercial real estate leases. These leases are organized around two rent calculation methods: “net” and “gross.” The gross lease typically means a tenant pays one lump sum for rent, from which the landlord pays his expenses. The net lease has a smaller base rent, with other expenses paid for by the tenant. The modified gross lease is a happy marriage between the two. While terms vary widely building by building, this basic overview will help businesses shop for the best deal possible.
Gross Lease or Full Service Lease
In a gross lease, the rent is all-inclusive. The landlord pays all or most expenses associated with the property, including taxes, insurance, and maintenance out of the rents received from tenants. Utilities and janitorial services are included within one easy, tenant-friendly rent payment.
When negotiating a gross lease, the tenant should ask which janitorial services are provided, and how often they are offered. Excess utility consumption beyond building standards is sometimes charged back to tenant; so if the tenant is a big consumer of electricity, this point should be clarified in the lease as well. The tenant pays his own property insurance and taxes.
A benefit of this type of lease is that it is supremely easy for the tenant, which can forecast expenses without worrying about an unexpected lobby maintenance charge, for example. The landlord assumes all responsibility for the building, while tenants concentrate on growing their businesses.
Net Lease
In a net lease, the landlord charges a lower base rent for the commercial space, plus some or all of “usual costs,” which are expenses associated with operations, maintenance, and use that the landlord pays. These can include real estate taxes; property insurance; and common area maintenance items (CAMS), which include janitorial services, property management fees, sewer, water, trash collection, landscaping, parking lots, fire sprinklers, and any commonly shared area or service.
There are several types of net leases:
Single Net Lease (N Lease)
In this lease, the tenant pays base rent plus a pro-rata share of the building’s property tax (meaning a portion of the total bill based on the proportion of total building space leased by the tenant); the landlord covers all other building expenses. The tenant also pays utilities and janitorial services.
Double Net Lease (NN Lease)
The tenant is responsible for base rent plus a pro-rata share of property taxes and property insurance. The landlord covers expenses for structural repairs and common area maintenance. The tenant once again is responsible for their own janitorial and utility expenses.
Triple Net Lease (NNN Lease)
This is the most popular type of net lease for commercial freestanding buildings and retail space. It is known as the net net net lease, or NNN lease, where the tenant pays all or part of the three “nets”–property taxes, insurance, and CAMS–on top of base monthly rent. Common area utilities and operating expenses are usually lumped in as well; for example, the cost for staffing a lobby attendant would be part of the NNN fees. Of course, tenants also pay the costs of their own occupancy, including janitorial services, utilities, and their own insurance and taxes.
Landlords typically estimate expenses and charge tenants a portion of these expenses based on their proportionate, or pro-rata share. A tenant who leases 1,000 square feet of a 10,000 square foot building would be expected to pay 10% of the building’s taxes, insurance, and CAMS, for example.
Triple net leases tend to be more landlord-friendly, and tenants should carefully review NNN fees and negotiate caps on the amounts they can be raised annually. An NNN lease can also fluctuate from month to month and year to year as operating expenses increase or decrease, making the company’s expense forecasting tricky and sometimes frustrating.
There are tenant benefits in the NNN leases, however. Transparency is an excellent perk, since tenants can see business operating expenses in relation to what they are charged. Cost savings in operating expenses are passed on to the tenant rather than to the landlord. In addition, the monthly rent in a NNN lease is potentially lower than in a gross lease, as tenants have a higher level of responsibility for the building.
Absolute Triple Net Lease
This is a less common option that is more rigid and binding than the NNN lease, where tenants carry every imaginable real estate risk, for example, being responsible for construction expenses to rebuild after a catastrophe, or for continuing to pay rent even after the building has been condemned. Aptly called the “hell-or-high-water lease,” tenants have ultimate responsibility for the building no matter what.
Modified Gross Lease
As the gross lease is more tenant-friendly, and the net lease tends to be more landlord-friendly, there exists a compromise lease for the convenience of both parties. The modified gross lease (sometimes called the modified net lease) is similar to a gross lease in that the rent is requested in one lump sum, which can include any or all of the “nets”–property taxes, insurance, and CAMS. Utilities and janitorial services are typically excluded from the rent, and covered by the tenant. Tenants and landlords negotiate which “nets” are included in the base rental rate.
The modified gross lease is more popular with tenants because its flexibility translates into an easier agreement between tenant and landlord. Unlike the NNN lease, if insurance, taxes, or CAM charges increase, the lease rate would not change. Of course, if those expenses decrease, the cost savings are passed on to the landlord. As janitorial service and electricity are not covered, tenants can better control how much they spend compared to a gross lease.
Summary of NNN Lease, Modified Gross, or Full Service Commercial Leases
When evaluating options for office space lease, it is important to compare the different lease options with an eye toward all expenses, and not just the base rental rates. NNN base rental rates tend to be much lower, with additional expenses added for the real monthly rate.
Market forces will tend to even out rental rates for comparable properties, regardless of the type of lease. Tenants should expect to pay roughly the same amount with an NNN, modified gross, or full-service lease for similar quality office spaces in the same area.
The most important rule of commercial leases is for tenants to read their leases carefully, and clarify exactly what expenses they have responsibility for. Circumstances under which additional charges will occur should be identified and caps negotiated.
Novating a contract
Sometimes businesses enter into agreements, which they later need to give up, be it because of internal restructuring or following an asset purchase. In these types of cases, termination may not always be the most appropriate or possible solution. However, they may be able to transfer both their rights and obligations to a third party. Read this Quick Guide to find out how.
Novation is the process by which the original contract is extinguished and replaced with another, under which a third party takes up rights and obligations duplicating those of one of the parties to the original contract.
This means that the original party transfers both the benefits and burdens under the contract. The benefits could be in the form of money or the benefit of a service, while burdens are what the party is obliged to do in order to receive the benefits, for example, payment for a service or goods, or the performance of a service.
Novation is a complex process, as all the parties involved (the original parties and the incoming party) have to sign the Novation agreement.
This is because while the benefits under a contract can be assigned without the other party’s consent, contractual obligations cannot be assigned without their consent. This means that the original party can only achieve this if both the the new party and the third party agree to a Novation.
This may be difficult in some cases, for example when there is a change of supplier of services. The other original party may find it difficult to agree, if they don’t see a benefit of Novating the contract or ask for further assurances that they won’t be worse off as a result of the Novation.
In these kinds of situations, the party wishing to Novate the contract should be prepared to negotiate with the other party. Ask a lawyer if you need advice based on your specific circumstances.
Parties wishing to Novate their contract should carefully check its terms as sometimes, there may be a provision in a contract which will ban all purported transfers of the rights and obligations under the contract or it may specify how consent is to be acquired.
A Novation agreement is essentially notice to the remaining party, and therefore the requirements for serving notice should be followed.
After the contract is Novated, the outgoing party and the remaining party usually release each other from any liability and claims in respect of the original agreement on or after the date the agreement was signed.
They might also agree to indemnify (promise each other to compensate the loss incurred to the other party due to the acts of the first party or any other party). For example, the outgoing party can agree to indemnify the incoming party in respect of any liabilities and obligations the incoming party agrees to take over and the incoming party can agree to indemnify the outgoing party in respect of any liabilities that the outgoing party retains.
A Novation agreement transfers both the benefits and the obligations of a contract to a third party.
In contrast an assignment does not transfer the burden of a contract. This means the outgoing party remains liable for any past liabilities incurred before the assignment
Typical Steps in an FSBO Home Sale Transaction
To successfully complete the sale and legal transfer of one’s home, the following steps are generally taken:
1) The property must be valued by the seller in order to obtain a legitimate and reasonable sales price for the property. It must then be placed on market for sale and advertised.
2) A written Real Estate Purchase and Sale Agreement, a Lead Hazard Disclosure form and other Real Property Disclosure forms (and other legal documents as may be required by the laws of the state in which the home is located) must be prepared by seller and presented to purchaser. These documents are then signed by the parties. A down payment/deposit is then usually paid to seller by purchaser at this time.
3) The purchaser begins the process of obtaining financing to pay the purchase price. This step may require that the purchaser obtain a survey and/or have a title search completed (or other activity as required by lender). The purchaser and/or lender may require a title insurance policy to be purchased and issued on the property, too.
4) The seller prepares a Deed (Quitclaim, Warranty or some other form of Deed), signs it, has it witnessed and notarized so that the property can be transferred to the purchaser.
5) The closing takes place and the purchaser (and/or lender) tenders the remainder of purchase price (that amount that is to be paid after the down payment is applied to the purchase price of the property) to the seller. The seller pays off all liens and mortgages on the property, and the revised Deed is tendered to purchaser. The purchaser then files that Deed with the governmental recording office in the county or parish in which the property is located so that property is legally transferred to purchaser’s name.
What Else is Required to Complete the FSBO Process?
While some additional steps are required if a bank loan is involved (e.g. the bank may require a survey, a home inspection, or may even require some testing for environmental issues), the steps listed above are those usually required in a For Sale by Owner real estate transaction.
Additionally, a closing agent (usually a title company) can assist the buyer and seller in helping the parties transfer funds, file the deed and generally “close” the sale. The cost of a title company services are usually fairly modest.
Please note that each home sale transaction may be unique and that issues may arise in the transaction requiring additional or different steps be taken (and, in some cases, additional forms and documents may be required). It is recommended that should any issues arise in the transaction that are not “typical”, a licensed attorney be contacted. This article is not intended to provide any legal advice with regard to the purchase or sale of any residential property.
When homeowners sell the family home to a loved one, they may wish to do so at a discounted rate. When this happens, the difference between the home’s market value and its sale price acts as a gift of equity from the seller to the buyer. A gift of equity is beneficial to the buyer, but there are certain requirements and potential tax implications that both parties should be aware of.
What Is A Gift Of Equity?
A gift of equity occurs when someone sells a property to a family member or close associate for a lower price than the current market value. The difference between the two prices represents the gift of equity.
The gift of equity generally serves as the homebuyer’s down payment. It makes it easier for them to get a mortgage by creating equity in the home.
A gift of equity is often used when a home sale occurs between family members. For example, parents might use a gift of equity when selling the family home to their child.
How Does A Gift Of Equity Work?
When parties plan to use a financial gift of equity, the homeowner sells the residence to the buyer at a rate below its market value. No money changes hands between the two parties. Instead, the gift creates equity in the home for the buyer. Then, when it comes time to get a mortgage, that equity serves as the buyer’s down payment rather than having to put down cash.
Suppose a retired couple was moving to a smaller home and decided to sell their family home to their son and his new wife. The home’s value is $200,000, but the parents wish to cover the 20% down payment for their son. Rather than writing their son a check for $40,000, they would simply sell the home to their son for $40,000 less than its market value.
The $40,000 difference is the gift of equity and serves as the son’s 20% down payment. The son is likely to have an easier time getting a mortgage since he’ll have 20% equity in the home. He’ll also avoid paying private mortgage insurance, which is often required for down payments less than 20%.
Gift Of Equity Requirements
There are a couple of specific requirements that the parties must meet to complete a gift of equity. Sellers should keep these in mind if they’re considering using this strategy to sell a home to a loved one.
Equity Letter
A gift letter is a document that summarizes all of the information about the gift, including the appraisal price and the sale price. Both the buyer and seller must sign the letter. A second letter will accompany other official documents at the home’s closing.
An Official Appraisal
To complete a gift of equity, the home’s seller must have an official appraisal done. Using the appraisal, the parties can determine the sale price and the gift of equity. The lender requires this appraisal, and the appraisal value will be included in the gift letter.
The Pros And Cons Of A Gift Of Equity
Pros Of A Gift Of Equity
Avoid paying real estate agent commissions: Because a gift of equity often happens between two family members, these home sales often don’t require a real estate agent or an agent’s commission. This benefits the seller, who typically pays commission for both agents.
Lower or no down payment for recipient: Because the gift of equity serves as the down payment, the buyer often doesn’t have to put down any additional money.
Faster home sale: A gift of equity can help to expedite a home sale. First, the buyer doesn’t need time to save a down payment and may have an easier time qualifying for a mortgage. And because the sale occurs between family members, the process can go more smoothly.
Potentially avoid paying private mortgage insurance: Buyers typically must pay private mortgage insurance (PMI) when they purchase a home with less than 20% down. Because the gift of equity often serves as a down payment, it can negate the need for PMI.
Keeping a home within the family: For many people, their family home is an important memento. A gift of equity can help to keep a home within the family even when the buyer may not be able to save enough for a down payment.
Cons Of A Gift Of Equity
Legal fees for both parties: A gift of equity requires a contract between the two parties. As a result, one or both parties may have fees to an attorney to draft the contract.
Potential trigger of the gift tax: The IRS requires that people file a gift tax return when they transfer more than $15,000 in gifts to another individual. If the gifted equity equals more than $15,000, then a seller would have to file this return.
Negative effect on home’s cost basis: When you sell a home for more than you bought it for, you may be subject to capital gains taxes on the profit. Because a gift of equity reduces the sale price of a home (aka the cost basis), it increases the chances that the buyer will end up paying those capital gains taxes.
Negative effect on local real estate market: A gift of equity reduces the sale price of a home. Doing so could impact the neighborhood’s real estate market because there’s a record of a property being sold below market value.
The Bottom Line
A gift of equity is a strategy that people can use to sell a family home to a relative for less than its market value. The lower sale price serves as the buyer’s down payment, making it easier for them to buy the home.
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A land patent is a form of letters patent assigning official ownership of a particular tract of land which has gone through various legally proscribed processes – such as surveying and documentation, followed by the letters signing, sealing, and publishing in public records – made by a sovereign entity.
It is the highest evidence of right, title, and interest to a defined area. It is usually granted by a central, federal, or state government to an individual, partnership, trust or private company.
The land patent is not to be confused with a land grant. Patented lands may be lands previously granted by a sovereign authority in return for services rendered or accompanying a title or otherwise bestowed gratis, or they may be lands privately purchased by a government, individual, or legal entity from their prior owners.
“Patent” is both a process and a term. As a process, it is somewhat parallel to gaining a patent for intellectual property, including the steps of uniquely defining the property at issue, filing, processing, and granting. Unlike intellectual property patents, which have time limits, a land patent is permanent.
In the United States, all claims of land ownership can be traced back to a land patent, first-title deed, or similar document regarding land originally owned by France, Spain, the United Kingdom, Mexico, the Kingdom of Hawaii, Russia, or Native Americans. Other terms for the certificate that grants such rights include first-title deed and final certificate.
A land patent is known in law as a “letters patent”, and usually issues to the original grantee and to their heirs and assigns forever. The patent stands as the supreme title to the land because it attests that all evidence of title existent before its issue date was reviewed by the sovereign authority under which it was sealed and was so sealed as irrefutable; thus, at law, the land patent itself so becomes the title to the land defined within its four corners.
In practice, the “irrefutability” of counter-claims is relative; however, once a patent is granted permanence of title is established.
History of land patents in the United States of America
Land in the United States of America was acquired by claim, seizure, annexation, purchase, treaty, or war from France, Great Britain, the Kingdom of Hawaii, Mexico, Russia, Spain and the Native American peoples.
As England, later to become Great Britain, began to colonize America, the Crown made large grants of territory to individuals and companies. In turn, those companies and colonial governors later made smaller grants of land based on actual surveys of the land. Thus, in colonial America on the Atlantic seaboard, a connection was made between the surveying of a land tract and its “patenting” as private property.
Many original colonies’ land patents came from the corresponding country of control (e.g., Great Britain). Most such patents were permanently granted. Those patents are still in force; the United States government honors those patents by treaty law, and, as with all such land patents, they cannot be changed.
Many early patents of lands originally granted by Native peoples were contested, occasionally in court, as a result of different understandings of “private property” and “ownership” between those people, who typically held land and its bounties communally, reinforced by oral tradition, and colonizers from Western Europe who held established and finite views on assets, their transfer, and their adjudication in a system of written laws, Crown rights and officials, courts, and permanent records.
After the American Revolution and the ratification of the Constitution of the United States, the United States Treasury Department was placed in charge of managing all public lands. In 1812, the General Land Office was created to assume that duty.
In accord with specific Acts of Congress, and under the hand and seal of the President of the United States of America, the General Land Office issued more than 2 million land grants made patent (land patents), passing the title of specific parcels of public land from the nation to private parties (individuals or private companies). Some of the land so granted had a survey or other costs associated with it. Some patentees paid those fees for their land in cash, others homesteaded a claim, and still, others came into ownership via one of the many donation acts that Congress passed to transfer public lands to private ownership. Whatever the method, the General Land Office followed a two-step procedure in granting a patent.
First, the private claimant went to the land office in the land district where the public land was located. The claimant filled out entry papers to select the public land, and the land office register (clerk) checked the local registrar records to make sure the claimed land was still available. The receiver (bursar) took the claimant’s payment because even homesteaders had to pay administrative fees.
Next, the district land office register and receiver sent the paperwork to the General Land Office in Washington. That office double-checked the accuracy of the claim, its availability and the form of payment. Finally, the General Land Office issued a land patent for the claimed public land and sent it on to the President for his signature.
The first United States land patent was issued on March 4, 1788, to John Martin. That patent reserves to the United States one-third of all gold, silver, lead and copper within the claimed land.
A land patent for a 39.44-acre (15.96 ha) land parcel in present-day Monroe County, Ohio and within the Seven Ranges land tract. The parcel was sold by the Marietta Land Office in Marietta, Ohio in 1834.
Usage restrictions (e.g., oil and mineral rights, roadways, ditches, and canals) placed on the land are spelled out in the patent. These are distinct from state and local statutory regulations relative to property appurtenant to the land, such as zoning and building codes, as well as property taxes applying to both land and property.
Private property rights accompanying land patents can also be thereafter negotiated in accord with the terms of private contracts. The rights inherent in patented land are carried from heir to heir, heir to the assignee, or assignee to assignee, and cannot be changed except by private contract (warranty deed, quitclaim deed, etc.). In most cases, the law of a particular piece of patented land will be governed by the Congressional Act or treaty under which it was acquired, or by terms spelled out in the patent. For example, in the United States, the laws governing the land may involve the Homestead Act or reservations placed on the face of the patent, or the Treaty of Guadalupe Hidalgo, which governs certain jurisdictional dicta relating to large amounts of land in California and adjoining territories.
Legal entities other than natural persons (such as trusts and corporations) cannot obtain land patents except by express act of the United States Congress. An example of Congress granting land through patents to corporate entities is the railroad grants made under the Pacific Railroad Acts to compensate the railroad companies for building a transnational railroad across America.
Former U.S. territories
When a territory agreed to enter the Union of the United States of America, an Enabling Act was agreed to as a condition precedent of statehood. The Enabling Act requires that all unappropriated (not yet privately owned) lands be forever disclaimed by the territory and the people of the territory, and the title ceded to the United States for its disposition.[2] For example, the enabling act of the Washington Territory declares, in part:
… that the people inhabiting said proposed States do agree and declare that they forever disclaim all right and title to the unappropriated public lands lying within the boundaries thereof, and to all lands lying within said limits owned or held by any Indian or Indian tribes; and that until the title thereto shall have been extinguished by the United States, the same shall be and remain subject to the disposition of the United States. ..
After the right and title to the land was disclaimed by the people of the territory, it was held in trust by the United States until someone proved a claim to it, typically by improving the homestead parcel for a certain period of time. Once a proper claim has been filed, the General Land Office (now the Bureau of Land Management) certifies that the claimant has paid for a survey, as well as depositing another sum of money. Then, pursuant to the various land acts of Congress, the land is granted to the private owner by letters patent under the signature and seal of the President of the United States of America.
When homeowners sell the family home to a loved one, they may wish to do so at a discounted rate. When this happens, the difference between the home’s market value and its sale price acts as a gift of equity from the seller to the buyer.
A gift of equity is beneficial to the buyer, but there are certain requirements and potential tax implications that both parties should be aware of.
What Is A Gift Of Equity?
A gift of equity occurs when someone sells a property to a family member or close associate for a lower price than the current market value. The difference between the two prices represents the gift of equity.
The gift of equity generally serves as the homebuyer’s down payment. It makes it easier for them to get a mortgage by creating equity in the home.
A gift of equity is often used when a home sale occurs between family members. For example, parents might use a gift of equity when selling the family home to their child. When parties plan to use a financial gift of equity, the homeowner sells the residence to the buyer at a rate below its market value. No money changes hands between the two parties. Instead, the gift creates equity in the home for the buyer. Then, when it comes time to get a mortgage, that equity serves as the buyer’s down payment rather than having to put down cash.
Suppose a retired couple was moving to a smaller home and decided to sell their family home to their son and his new wife. The home’s value is $200,000, but the parents wish to cover the 20% down payment for their son. Rather than writing their son a check for $40,000, they would simply sell the home to their son for $40,000 less than its market value.
The $40,000 difference is the gift of equity and serves as the son’s 20% down payment. The son is likely to have an easier time getting a mortgage since he’ll have 20% equity in the home. He’ll also avoid paying private mortgage insurance, which is often required for down payments of less than 20%.Gift Of Equity Requirements There are a couple of specific requirements that the parties must meet to complete a gift of equity. Sellers should keep these in mind if they’re considering using this strategy to sell a home to a loved one.
Equity Letter
A gift letter is a document that summarizes all of the information about the gift, including the appraisal price and the sale price. Both the buyer and seller must sign the letter. A second letter will accompany other official documents at the home’s closing.
An Official Appraisal
To complete a gift of equity, the home’s seller must have an official appraisal done. Using the appraisal, the parties can determine the sale price and the gift of equity. The lender requires this appraisal, and the appraisal value will be included in the gift letter.
The Pros And Cons Of A Gift Of Equity
Pros Of A Gift Of Equity
Avoid paying real estate agent commissions: Because a gift of equity often happens between two family members, these home sales often don’t require a real estate agent or an agent’s commission. This benefits the seller, who typically pays commission for both agents.
Lower or no down payment for recipient: Because the gift of equity serves as the down payment, the buyer often doesn’t have to put down any additional money.
Faster home sale: A gift of equity can help to expedite a home sale. First, the buyer doesn’t need time to save a down payment and may have an easier time qualifying for a mortgage. And because the sale occurs between family members, the process can go more smoothly.
Potentially avoid paying private mortgage insurance: Buyers typically must pay private mortgage insurance (PMI) when they purchase a home with less than 20% down. Because the gift of equity often serves as the down payment, it can negate the need for PMI.
Keeping a home within the family: For many people, their family home is an important memento. A gift of equity can help to keep a home within the family even when the buyer may not be able to save enough for a down payment.
Cons Of A Gift Of Equity
Legal fees for both parties: A gift of equity requires a contract between the two parties. As a result, one or both parties may have fees to an attorney to draft the contract.
Potential trigger of the gift tax: The IRS requires that people file a gift tax return when they transfer more than $15,000 in gifts to another individual. If the gifted equity equals more than $15,000, then a seller would have to file this return.
Negative effect on home’s cost basis: When you sell a home for more than you bought it for, you may be subject to capital gains taxes on the profit. Because a gift of equity reduces the sale price of a home (aka the cost basis), it increases the chances that the buyer will end up paying those capital gains taxes.
Negative effect on local real estate market: A gift of equity reduces the sale price of a home. Doing so could impact the neighborhood’s real estate market because there’s a record of a property being sold below market value.
The Bottom Line
A gift of equity is a strategy that people can use to sell a family home to a relative for less than its market value. The lower sale price serves as the buyer’s down payment, making it easier for them to buy the home.
Here are some of the most common HOA rules violations you should know about:
1. Landscaping HOAs are responsible for the community’s curb appeal, so expect yours to have rules about overgrown lawns, weeds and unkempt exteriors. Be sure to check your bylaws about what types of trees, plants and shrubs are allowed to be planted.
2. Vehicles HOAs often limit how many and what type of motor vehicles (RVs, boats and commercial vehicles, for example) can be kept on the property, as well as enforce speed limits and rules about parking in designated areas.
3. Rentals Some HOAs have rules about subletting homes, both because of security and because most communities’ insurance is dependent on the percentage of owners versus renters. Most HOAs require written permission to rent a home, which may require a homeowner to join a waitlist.
4. Trash Homeowners in an HOA can get into trouble for throwing certain items, like boxes that haven’t been broken down or pieces of furniture, into community dumpsters. It might also be against the rules to put trash cans out too early or not bring them in by a certain time, since they can attract pests and detract from the community’s appearance.
5. Exterior storage HOAs sometimes limit what types of equipment can be stored outside. For instance, you might have to keep bicycles or kayaks out of view, behind a fence. Your HOA might also have rules limiting or preventing the addition of storage structures that aren’t attached to the home.
6. Pets To keep their residents safe and comfortable, HOAs often have restrictions about where pets can and can’t walk, keeping dogs on leashes and picking up after your pet. You might also be limited to how many pets you can own, and specific breeds and sizes.
7. Noise Most HOAs have rules that restrict loud noises between certain hours. (Most cities and counties also have noise ordinances that must be followed, even if the HOA doesn’t have restrictions.)
8. Holiday decorations If you’re the neighbor who keeps Christmas lights up until Valentine’s Day, living in an HOA community might not be ideal. Some HOA rules include rules for how long before and after a holiday you can decorate your home’s exterior. Others might even regulate the size and type of decor allowed.
9. Design changes HOAs often have strict rules about changing the appearance or structure of your home. Simple things like painting your house, adding a patio or deck or even changing your mailbox usually require written approval from the HOA’s design review committee.
Can the police enforce HOA rules? The short answer is yes, police can enforce some HOA rules. That’s because HOA rules have to comply with state and local laws and ordinances. For instance, police could enforce speed limits, noise ordinances and pet leash laws because they are legal matters, but they wouldn’t enforce other HOA rules on landscaping or paint violations.
What happens if you violate HOA rules? An HOA can’t force a homeowner to sell a home for not following the HOA rules; however, it can enforce the rules and initiate reasonable fines for violations.
Just ask Atlanta homeowner Parker Singletary. Before Atlanta hosted the Super Bowl in 2019, one of Singletary’s neighbors mentioned that residents were allowed to rent their homes just for that weekend. Singletary cleaned his house, took photos and posted them on a popular property rental site.
“Nobody ended up taking my house for the weekend, so I thought I was done with the situation,” Singletary says. Instead, he received a cease-and-desist letter from a local law firm for breaking the HOA rules, along with a $1,000 fine.
As Singletary discovered, whether you knowingly break the HOA rules or overstep them by mistake, the consequences can be costly. If a bylaw is broken, it’s the association’s responsibility to notify the offending resident to allow them to comply, or assign a fine.
In Singletary’s case, he didn’t receive a warning. Instead, he received a $1,000 fine, which he appealed. The fine was later reduced to $300 to cover legal fees.
If a homeowner doesn’t pay a fine for a violation, late fees can pile up, and the HOA can put a lien against their home (even if it has a mortgage). The HOA can opt to foreclose on the lien, too, so it’s best to avoid that outcome if possible.
How to respond to HOA rules violations Address it. Ignoring a violation won’t make it go away, and can actually make the situation much worse. Once you’ve received a violation notice, take steps to understand and correct the violation, and either pay or appeal the fine, if there is one. Don’t take it personally. Remember that the HOA’s rules were created to keep the community safe and comfortable for residents, including you. You also agreed to abide by the rules when you bought your home. Communicate. While friendly face-to-face communication can address minor infractions or warnings, written communication and documentation helps create clarity for everyone involved. When you’ve been accused of an HOA rule violation, it’s best to address it in writing. If there are extenuating circumstances — like a family emergency that causes you to fall behind on lawn care — communicate that to your HOA property manager. You don’t know if an exception can be made until you ask. Get involved. “There is usually a correlation between the level of homeowner involvement and the long-term success of a community,” Bauman says. So, if you want to improve your community, volunteer for a board position or attend meetings to see how you can contribute. Bottom line Living in an HOA community isn’t for everyone, but if you’re interested in joining one, be sure to do your homework and understand the rules before making an offer on a home. How an HOA enforces its rules and handles violations can vary between communities, so obtain a copy of the association’s CC&Rs to ensure you understand what you’re buying into and agreeing to.
“Homeowners have the right to receive all documents that address rules and regulations governing the community association,” Bauman says, adding that “since association rules vary from community to community, common HOA violations also differ.”
KC Real Estate Lawyer in Kansas City MO HOA RESTRICTIONS ON SHORT TERM RENTALS
What are Short term HOA Rental Restrictions?
At first blush, short-term rentals seem like a win-win situation. You can find a nice place to stay for a few nights, and it is frequently cheaper than booking a hotel. Just as importantly, vacation houses and condos rented out through Airbnb or VRBO are often more interesting places to stay, with the individual character and idiosyncrasies you do not get from a cookie-cutter hotel room. It can be a great deal for property owners, too.
In the right location, a property rented for short-term stays can bring in significantly more revenue than with a traditional year-to-year lease. That extra cash can be put toward improving the property, making it into a more attractive destination that can command higher rates. Or, it can just provide supplemental income. Either way, the property owner is coming out ahead.
So far, short-term rentals sound like a great deal for all involved parties. Yet, there has been a growing trend to prohibit them in HOA communities. Is it just a case of power-tripping HOA boards lording their authority over members by banning a potentially lucrative source of secondary income? Actually, no. As is so often the case, there is more to it than that.
For all their virtues, Airbnb, VRBO, and similar services can have genuine downsides for a homeowners’ association. On a smaller scale, it is analogous to the so-called “Lemon Socialism,” where profits are privatized, and risks are socialized. In this case, the advantages of short-term rentals (i.e., increased income) are reaped by individual property owners, while the potential downsides (when they are present, which is not always the case) are borne by the community as a whole.
Why Do HOAs Prohibit Short-Term Rentals?
When an HOA imposes a restriction on homeowners’ use of their properties, it needs to have some justification (or at least a feasible pretense). With short-term rental restrictions, the purpose is generally to protect other members and preserve the character of the community. A quiet, sleepy neighborhood that all-the-sudden has vacationers coming and going on a regular basis stands a good chance of losing its quiet, sleepy nature.
Vacation renters tend to be messier and noisier, especially at night, than permanent residents. The commotion can become a nuisance for people who reside in the community year-round—specifically, other homeowners and their families. Short-term renters also tend to ignore HOA rules or simply not know what the rules are. In a community with common areas and facilities, vacationers can overtax the commons, preventing full-time residents from enjoying the benefits for which their assessments pay. Vacationers do not pay HOA fees and are less vested in the long-term condition of the community.
From a practical standpoint, short-term renters can increase a neighborhood’s traffic and parking problems. And, if travelers regularly use common facilities like a pool or recreation center, the HOA’s insurance rates are likely to increase, as additional use of the facilities by more people inevitably leads to more damage and risk of premises liability claims.
With that said, a lot depends on the nature of an individual community. If the impact from short-term rentals will be minimal—or if the community is in a vacation hotspot where a large percentage of owners like the idea of renting through Airbnb or VRBO—a rental restriction might not make sense for that community.
Authority to Restrict Short-Term Rentals
Even if a community has a valid reason to restrict short-term rentals, it still needs legal and/or contractual authority to support the restriction. Typically, the authority comes from an HOA’s declaration, from state law, or a combination of the two.
A declaration is a contract among property owners in a community. The owners jointly agree to accept certain obligations and restrictions on how properties in the community can be used. If everyone complies, the community as a whole will benefit—or at least that is the idea.
Throughout the country, courts generally assume HOA restrictions are enforceable as long as a restriction promotes a legitimate purpose and is not forbidden by statute. See, e.g., Saunders v. Thorn Woode Partnership, L.P. 265 Ga. 703, 462 S.E.2d 135 (Ga., 1995); Laguna Royale Owners Assn. v. Darger, 119 Cal.App.3d 670, 174 Cal. Rptr. 136 (Cal. Ct. App. 1981). Even broad restrictions against all rentals have been upheld in some jurisdictions if the restriction is in the HOA’s declaration, and the board can offer a legitimate justification for it. See, Four Brothers Homes at Heartland Condominium II, et al., v. Gerbino, 262 A.D.2d 279, 691 N.Y.S.2d 114 (N.Y. App. Div. 1999).
So, the starting point when deciding if an individual HOA has the authority to ban short-term rentals is to look at the community’s declaration. If the declaration prohibits rentals (short-term or long), then the HOA can likely enforce the prohibition unless there is some other reason why the restriction is unenforceable. Armstrong v. Ledges Homeowners’ Assoc., Inc., 633 S.E.2d 78 (N.C. 2006).
Limitations on Rental Restrictions
Though state HOA laws can vary considerably from state to state, multiple state legislatures have recognized that the right to rent out a property is valuable enough for homeowners to warrant some statutory protection. In general, state-law limitations on rental restrictions do not say that rental restrictions are per se unenforceable. Instead, the laws seek to protect property owners’ due process rights and avoid a scenario in which an owner is deprived of a valuable property right without adequate notice.
In Arizona, for instance, an HOA cannot enforce a rental restriction against an owner unless the restriction was already in the community’s declaration when the owner acquired title to the property. A.R.S. §33-1260.01A. HOA declarations are public records recorded within county land records, so owners are assumed to have notice of restrictions and covenants in the declaration when accepting the deed to a property. The Arizona law protects owners from being deprived of a right they reasonably anticipated having when deciding to purchase the property.
California law gives potential purchasers of homes in HOA communities the right to receive a written statement of any rental restrictions in a community before title to a property is transferred. Cal. Civ. Code §4525(a)(9). The law recognizes that, while a recorded declaration serves as formal notice to purchasers, buyers do not always read them thoroughly before agreeing to a purchase.
Contractual & Statutory Protections
The most common state-law approach for protecting owners’ vested property rights is through “grandfather” laws. A grandfathering provision lets an HOA enforce a newly adopted restriction prospectively but protects owners who previously relied on the restriction’s absence.
Grandfathering statutes relating to rental restrictions recognize that a substantial portion of a property’s value can consist of the owner’s ability to generate revenue by renting it out. As such, owners who previously enjoyed that right should not be deprived of it in the future without their consent. In a nutshell, it is unfair to enforce a rental restriction against an owner who purchased a property when the restriction was not in place.
Florida and California laws prevent enforcement of rental restrictions against owners if the restriction was not already in effect at the time of purchase, and the owner did not vote to adopt the restriction. Fla. Stat. §718.110(13), Cal. Civ. Code §4740(a), (b). Similarly, Arizona’s law will not let an HOA enforce a rental restriction against an owner who purchased a property before the restriction’s enactment unless the restriction was approved by a unanimous member vote. A.R.S. §33-1227.
So far, this all seems straight-forward enough, but there is a curveball coming. Under California’s HOA law, existing owners are generally protected against later-adopted HOA rental restrictions. However, HOAs can enforce “reasonable” limitations, if not outright prohibitions. Laguna Royale Owners Assn. v. Darger, 119 Cal.App.3d 670, 174 Cal. Rptr. 136 (Cal. Ct. App. 1981). What that practically means is that an owner protected against rental restrictions, in general, might nonetheless be prevented from engaging in short-term rentals.
California courts have recognized that short-term rentals can negatively affect a community beyond what results from ordinary, long-term rentals. With that in mind, the courts reasoned that a minimum lease period (or similar rule preventing short-term rentals) does not offend California’s grandfathering law because the owner still has the right to rent the property. The right has been limited, but the owner can still rent to a long-term tenant. Watts v. Oak Shores Community Assn., 235 Cal.App.4th 466 (2015), Mission Shores Assn. v. Pheil, 166 Cal.App.4th 789, 83 Cal. Rptr. 3d 108 (Cal. Ct. App. 2008)
But that raises a question: what is so different about short-term rentals compared to long-term rentals?
Residential vs. Commercial Use Restrictions
Residential use restrictions are one of the most common restrictions included in HOA declarations, and they have been consistently upheld by reviewing courts throughout the country. Essentially, a declaration says that properties in the community are intended to be used as homes, not as businesses or farms. And, by accepting a deed to a property subject to the HOA, owners covenant that they will not use their properties for commercial (i.e., business-related) purposes.
It is similar to a single-family residential zoning ordinance—just adopted by an HOA instead of a local government. Some HOAs have tried to prohibit short-term rentals, relying on commercial-use restrictions. The argument is that if you are using your property as a short-term rental, you are effectively using it for a commercial purpose.
Before looking at this question further, it is worth emphasizing two points. First, state courts are not consistent in how they have interpreted the issue. Second, a short-term rental prohibition based on a residential-use covenant is distinct from an ordinary rental restriction. If an association can rely on an enforceable restriction prohibiting rentals, it does not need to argue that short-term rentals are a commercial use. The argument generally comes up when an HOA wants to prevent short-term rentals but does not have a rental restriction—or it has a rental restriction that it cannot enforce against a specific homeowner due to (for example) a grandfathering clause.
When considering this issue, an appeals court in Michigan held that an HOA that prohibited short-term rentals based on a commercial-use restriction did not exceed its authority. Eager v. Peasley, 911 N.W.2d 470, (Mich. Ct. App. 2017). Noting that “provid[ing] temporary housing” to vacationers is a “profit-making enterprise,” the court concluded that “the act of renting property to another for short-term use is a commercial use, even if the activity is residential in nature.”
Thus, under the Eager Court’s reasoning, a Michigan HOA with a commercial-use restriction could adopt and enforce a policy against short-term rentals, even if the HOA did not have an express rental restriction in its declaration.
On the other hand, states that afford greater deference to individual homeowners’ property rights have come down the other way. In North Carolina, for example, courts typically interpret unclear restrictions in favor of homeowners. Based on that principle, a North Carolina court held that a generalized restriction against non-residential use by itself was insufficient authority for an HOA to prohibit short-term rentals. Wise v. Harrington Grove Cmty. Ass’n, 584 S.E.2d 731 (2003).
Unsurprisingly, the Texas Supreme Court likewise came down in favor of the property owner in Tarr v. Timberwood Park Owners Ass’n, 61 Tex. Sup. Ct. J. 1174 (2018). In that case, the HOA relied on a restriction that only allowed properties in the community to be used as single-family residences. According to the Tarr Court, the provision did not plainly forbid short-term rentals because, as long as renters used the home for residential purposes, the covenant was satisfied.
Unfortunately, the question as to whether a residential use provision provides adequate grounds to prohibit short-term rentals is inconsistent from state to state. Accordingly, the most sure-fire way for HOAs to prevent short-term rental of properties within the community is to amend their declarations to unambiguously forbid short-term rentals.
Adopting and Enforcing Short-Term Rental Restrictions
As we have seen, an HOA cannot just decide one day that it wants to prohibit short-term rentals. The prohibition must be grounded in some authority derived from the community declaration. For the most part, a community with an existing rental restriction in its declaration will have the right to enforce the restriction.
If it doesn’t, the HOA will need to amend its declaration following the amendment process provided under state law and the declaration itself. Usually, the amendment requires the approval of at least a majority of homeowners in the community.
When proposing language for a rental restriction, an HOA board should clearly define what rentals will be prohibited. A common approach is to establish a minimum lease period (such as 30 days), with any rental period below that threshold forbidden. If there will be any exceptions to the general prohibition, they need to be spelled out, too.
To avoid challenges from existing homeowners, it can be a good idea to include a grandfathering clause within a proposed amendment restricting rentals. Remember, multiple states have laws that prohibit enforcement of a rental restriction against a homeowner if the restriction was not in place when they acquired the property—unless the owner consents to the restriction. Even in states without these statutory protections, affected owners can argue that a newly adopted restriction deprives them of a vested property right.
A “grandfather” clause might let an owner currently engaged in short-term rentals continue doing so. Or an amendment could establish a cap on the number of homes in the community that can be used as short-term rentals. Rental restrictions should include an enforcement mechanism that can be used against non-compliant owners. For example, fines might be imposed on violative owners, or access to common facilities could be limited for so long as a violation continues. State HOA laws vary with regard to permissible penalties, so an HOA needs to make sure its enforcement mechanism is statutorily compliant.
When all else fails, an HOA can seek recourse via civil litigation. In that case, the board (on behalf of the HOA) files suit against the non-compliant owner and requests an order from a judge directing the owner to cease short-term rentals. Of course, litigation is often expensive and time-consuming, so it is usually better to resolve things out of court if possible.
Importantly, an HOA should consult with an experienced attorney when attempting to amend its declaration. An attorney familiar with HOA law can help create an enforceable policy that complies with state law and ensures the amendment process is properly observed—mitigating the risk of future challenges to the policy.
As a general matter, an HOA’s enforcement of rental restrictions (or any other restrictions, for that matter) needs to be “procedurally fair and reasonable.” Enforcement should be consistent and proportional and never “arbitrary and capricious.” Saunders v. Thorn Woode Partnership, L.P., 265 Ga. 703, 462 S.E.2d 135 (Ga., 1995). Inconsistent or arbitrary enforcement can provide homeowners with a defense against enforcement actions. White Egret Condo., Inc. v. Franklin, 379 So.2d 346 (Fla. 1979).
In many jurisdictions, courts have found that an association that attempts to enforce a restriction that it has not previously enforced consistently or enforced against some owners but not others—has effectively abandoned or waived its right to enforce the restriction. Liebler v. Point Loma Tennis Club, 40 Cal. App. 4th 1600, 1610-11 (4th Dist. 1995); Prisco v. Forest Villas Condominium Apartments, Inc., 847 So 2d 1012 (Fla.App. Dist.4, 2003).
Similarly, enforcement aimed only at homeowners that fall within certain groups is subject to challenge by the singled-out homeowners. See, e.g., Bloch v. Frischholz, 533 F.3d 562 (7th Cir. 2008).
Fair Housing Act Implications
Like with any other policies, an HOA’s short-term rental restriction policies need to comply with the federal Fair Housing Act. The FHA prohibits housing discrimination based on race, color, religion, sex, familial status, national origin, or disability. 42 U.S.C. §3604(a). Blatantly discriminatory policies are obviously banned. For instance, an HOA cannot adopt a policy that prohibits short-term rentals to Episcopalians or prevents Episcopalians (but only Episcopalians) from renting their properties.
The FHA can also cover policies and actions that are unintentionally discriminatory. If a policy results in a disproportionately “disparate impact” on a protected class, the policy may violate the FHA. Texas Dept. of Housing and Community Affairs v. Inclusive Communities Project, Inc., 135 S.Ct. 2507 (2015).
“Familial status” discrimination can be a potential FHA tripwire for HOAs. Under federal court decisions interpreting the FHA, “familial status” does not just mean things like whether a person is married, single, or divorced. The term has also been interpreted to include most age-based discrimination. See, Iniestra v. Cliff Warren Investments, Inc., 886 F. Supp. 2d 1161, 1164 (C.D. Cal. 2012). Restrictions against families with children—or restrictions that appear designed to prevent rentals to families with children—can likewise amount to familial status discrimination in violation of the FHA.
So, for instance, an HOA that tries to enforce a validly adopted blanket prohibition on short-term rentals will probably be upheld. But an HOA that allows some short-term rentals—but not to renters who have children—may find itself subject to an FHA complaint.
HOA laws can be complex, with many variations between states. Homeowners who have questions about how their association’s rules affect their rights—and associations that are unsure of the breadth of their restrictions or are considering an amendment to covenants—should consult with an experienced attorney familiar with the HOA laws of the state in which the community is situated.
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A tenancy in common is a popular way for co-owners to take title to a home. This way of vesting offers an alternative to joint tenancy, in which a home is co-owned, but the owners split their interests evenly. Here, we talk about what a tenancy in common is, and why its allowance for co-owning in unequal shares can be a benefit.
The Tenancy in Common: A Popular Choice for Co-Owners
When people acquire a property together, they should be ready to specify what form of vesting will appear on the deed. In some states, the tenancy in common is the default vesting mode for married couples. In some states, it’s the default mode for unmarried co-owners, so these owners become tenants in common unless they affirmatively pick another form of vesting.
Tenants in common can be a pair of owners or a group. They can be related to each other or unrelated. They can be spouses, siblings, partners, or friends.
When they decide to hold title to a home in a tenancy in common, can these co-owners divide ownership unequally? Can each co-owner pitch in for maintenance in different amounts?
On both counts, yes:
The co-owners need to state their specific share percentages. This is sometimes overlooked by title companies — but the co-owners should have their own plan. Equal shares might not be optimal. Each owner can hold any percentage of the whole, and the deed will show each co-owner’s ownership percentage.
Unless otherwise agreed, co-owners share expenses in proportion, too. When two or more people buy a house together, they’ll likely have different reasons and capacities for investing. We’ll take a look at some scenarios in the next section.
Do the co-owners need to inhabit the home together? Only if that’s the plan. No one, legally speaking, is allowed to keep any part of the home off-limits to the other co-owner(s). In other words, the co-owners, even if they hold unequal portions of the property, enjoy a right to of access to all of it. But they can buy a home together without any intention to physically share it.
Scenarios: Why Co-Buy
Many people decide to share equity in their homes. Payments and expenses can be collaborative investments.
Co-buying with a friend, business colleague, or sibling as tenants in common may help one or more of the co-buyers become homeowners. One owner might be on firmer financial ground than the other, and offer to be a co-buyer in order to help the other buy. The plan might involve refinancing later, in order to transfer the title into sole ownership, without the benefactor.
A lender may want the additional co-signer on the loan to be a co-owner, so the financially stronger person has a stake in the asset. In this case, the primary buyer will live in the house, pay for the house, make all mortgage and tax payments, and take full responsibility for repairs, homeowner’s association dues, landscaping, and so forth. “Owner B” will pay nothing, and is only in the tenancy in common to help “Owner A” buy and have real estate. “Owner B” may take the lower percentage of ownership the lender allows. Later, when “Owner A” achieves sole ownership, only the smaller portion needs to be conveyed from B to A, so the new sole owner will have a lower transfer tax.
These co-owners should think through every what-if scenario. What if “Owner B” passes away before the refinancing and transfer to sole ownership is complete? Did the co-owners create a legal agreement, explaining what should happen to the property if one co-owner dies during a temporary co-ownership? By default, the house will go into probate.
Another reason for co-buying with a small ownership percentage could involve a condo purchase. Condo properties generally limit the renting of units and restrict owner-investors to some extent. A tenancy in common with unequal interests can be a workaround for the investor—if the mortgage lender approves of the ownership disparity on the deed.
How the Mortgage Works for a Tenancy in Common
If co-owners are taking title without having to finance the home, their unequal ownership percentages are up to them. They could have 99% and 1% interests; they tenancy in common allows for it. But if the house is financed, a lender is unlikely to let one borrower have minimal rights to the asset’s value. The point of requiring co-owners is to have everyone on the loan share responsibility for paying it back.
Ultimately, the lender wants the option to claim the whole property in the event of default—thus, banks like co-signers to be co-owners. In reality, though, just one person might be paying the mortgage, and the other is on the deed in name only. “Owner B,” the Good Samaritan co-borrower, should be aware that no one is exempt from responsibility for paying off the mortgage and prepare for that unintended possibility.
Selling: What Happens When a Co-Owner Wants Out
When co-owners buy a home in a mutually beneficial agreement, they can later sell and divide the proceeds according to their share percentages. But tenants in common do not need to all be on board with selling at the same time. The co-owners in a tenancy in common:
Can sell or take a loan out against their own share.
Can sell their own interests in the property without the other owners’ consent.
Cannot sell the entire property (forcing the others to sell) without the others’ consent.
People can come into, as well as leave, the agreement. At any time, a new co-owner may come on board. At this time, the current group will need to convey their deed to the new, larger group—while leaving their original agreement intact.
Unmarried tenants in common must pay tax when selling the property in whole or in part. Yet owners who make capital gains from the sale are eligible to exclude up to $250,000 of that profit from income tax, if they meet the IRS requirements.
Last Wishes: What Happens When a Co-Owner Passes
A tenancy in common differs from a joint tenancy with rights of survivorship. Should one of the owners pass away during the tenancy in common, that property interest winds up in probate, in the deceased homeowner’s estate. Put in another way, tenants in common may leave their portions of the property to any beneficiaries they designate in their wills.
Upon any co-owner’s death, the living co-owners could wind up sharing ownership of the home with a beneficiary they do not know. This problem can be averted through a consultation with a wills and estates lawyer early in the process.
In short, co-owners:
Can pass their ownership shares to their named beneficiaries; and
Cannot automatically pass the right of survivorship when they pass away.
The Co-Ownership Agreement
It can be well worth the time to hammer out a co-ownership agreement so the owners agree on how they will behave in certain situations. If the state in which the home exists allows it, co-owners in the tenancy in common may forge a written agreement to let one co-owner live in the house exclusively. They can also allocate responsibility for repairs and expenses.
It helps to lay out in writing:
What percentages in ownership shares the co-owners hold.
Who will live in the house.
How the rooms will be allocated if more than one owner will live in the house.
Who is responsible for various up-front costs during the buying process.
Who will cover the monthly mortgage loan payments, insurance, association fees, taxes, and other normal expenses.
Who will handle other responsibilities desired by the group.
A date by which refinancing and title transfer must occur if, for example, one owner is expected to achieve improved financial footing and become the sole owner.
How the parties intend to bequeath their interests should one of them pass away.
Quitclaim Deeds can be complicated legal documents. They are commonly used to add/remove someone to/from real estate title or deed (divorce, name changes, family and trust transfers).
Last updated: April 9, 2021
The quitclaim deed is a legal document (deed) used to transfer interest in real estate from one person or entity (grantor) to another (grantee). Unlike other legal conveyance deeds, the quitclaim conveys only the interest the grantor has at the time of the deed’s execution and does not guarantee that the grantor actually (legally) owns the property.
Without warranties, the quitclaim deed offers the grantee little or no legal recourse against the seller if a problem with the title arises in the future. This lack of protection makes a quitclaim unsuitable when purchasing real property from an unknown party in a traditional sale. It is, however, a useful instrument when conveying property from one family member or spouse to another, and it is commonly used in divorce proceedings or for estate planning purposes.
Title companies may require a person to execute a quitclaim document in order to clear up what they consider to be a cloud on the title prior to issuing title insurance. Similarly, prior to funding a loan, lenders may ask someone who is not going to be on a loan, such as a spouse, to complete and record a deed quit claiming their interest.
Warranty Deed, the Most Common Deed in Real Estate
Of all the real estate deeds, General Warranty Deeds provide the most protection to the grantee (buyer). This type of deed guarantees that the grantor (seller) holds a clear title to a piece of real estate and has a right to sell it to the grantee. The guarantee is not limited to the time the grantor owned the property as with a special warranty deed; rather, it extends back to the property’s earliest title. As such, earlier grantors occasionally find themselves confronted by issues from future grantees. The grantors also guarantee that, during their period of ownership, they did not encumber the property in any way that prohibits its transfer. Incorporate express references to any easements, restrictions, or other agreements of record that relate to the specific parcel of land, into the text of the deed. Providing this information puts the grantee on notice of the warranty’s limitations and upholds the covenant against encumbrances.
Traditionally, general warranty deeds include six common law covenants of title. Those six covenants can be separated into two categories: present covenants and future covenants.
Present Covenants:
Covenant of seisin: the grantor promises that he/she holds valid title to and possession of the property
Covenant of right to convey: the grantor guarantees that he/she may legally convey both title to and possession of the property
Covenant against encumbrances: the grantor legally declares the property to be free of any liens (encumbrances) unless stated in the deed
Future Covenants:
Covenant of warranty: the grantor will protect and defend the buyer against anyone who claims a superior title to the property
Covenant of quiet enjoyment: the grantee will be able to access and use the property without restrictions
Covenant of further assurances: the grantor will take reasonable actions necessary to resolve defects in the title
A grant deed is a legal document that is used to transfer (convey) rights in real property from one entity or person (the grantor) to another (the grantee).
A grant, or bargain and sale deed, contains no express warranties against encumbrances. It does, however, imply that the grantor holds title and has possession of the property. The language used in the granting clause is usually “ABC grants and releases,” or “XYZ grants, bargains, and sells,” and is often dictated by statute. Because the warranty is not specifically stated, the grantee has little recourse if title defects appear later.
In some states, this deed is used in foreclosures and tax sales. Each party transferring an interest in the property, or the grantor, is required to sign it. Then, the document must be acknowledged before a notary public (notarized) or other official authorized by law to administer oaths. The notary public or other official then places a seal and marks the document accordingly. The grant deed must be notarized in order to provide evidence that the instrument is genuine, as transaction documents are sometimes forged.
The grant deed must also include a legal description of the property, which includes boundaries and/or parcel numbers.
In most cases Grant deeds do not need to be recorded to be valid; however, it is in the grantee’s best interest to record the deed at the country recorder’s office in the county where the property is located.
The law recognizes a grant deed in writing. Hence, it must be an original and filed with the proper government authority. The deed must indicate the involved parties, which is both the grantor (seller) and the grantee (buyer). It must clearly state a legal description of the property being transferred. Guarantees and responsibilities must be stated in the deed as well. These guarantees indicate that the grantor owns the property free and clear, and the seller assumes the responsibility for settling any future claims. If there is a time limit on the guarantees, it must also be incorporated in the deed. The finished copy of the deed must be duly signed by the parties and notarized according to law.
The grantor settling any future claims on the property is the main criterion of writing a grant deed. However, this depends on the stipulated period, i.e., for the duration of time when the grantor maintains the rights to the property before the deed comes into effect. This clause is akin to general warranty deeds in some states, while a limited warranty deed for others.
The seller is obliged to prove the falsehood of any claim challenge, and if the grantor fails to prove the claim fraudulent then he/she must pay the amount to settle the claim. Further, if the claim remains unsettled and the grantee must forgo the ownership, the grantor must return the amount to the buyer. The amount also involves the cost of renovating or improving the property.
Once a deed has been recorded, it is part of the public record and cannot be changed. It is possible, however, to amend that record by adding a newly executed deed, usually called correction or corrective deed, deed of correction, or, in some states, deed of confirmation. As a confirmatory instrument, it perfects an existing title by removing any defects, but it does not pass title on its own.
A correction deed confirms the covenants and warranties of the prior deed. It needs to refer to that instrument by indicating its execution and recording date, the place of recording, and the number under which the document is filed. It also must identify the error or errors by type before supplying a correction. The body of this new deed contains the same information as the original deed and thus confirms the conveyance of title. Generally, all parties who signed the prior deed must sign the correction deed in the presence of a notary, who will acknowledge its execution.
A corrective deed is most often used for minor mistakes, such as misspelled or incomplete names, missing or wrong middle initials, and omission of marital status or vesting information. It can also be used for obvious errors in the property description. For example, errors transcribing courses and distances; errors incorporating a recorded plat or deed reference; errors in listing a lot number or designation; or omitted exhibits that supply the legal description of the property. A correction deed can also amend defects in the execution or acknowledgment of the original deed.
Resolving material errors often causes confusion. A material correction constitutes an actual change in the substance of the deed, such as changing the legal description, adjusting the amount of consideration, and adding or removing names. Some states allow a corrective instrument to address these flaws, but others require an entirely new deed.
Non-material changes are generally typographical in nature and may be adjusted with a less involved correction. For example, some states accept a re-submission of the original deed with corrections, along with a cover page that contains a correction statement, error identification, and clear reference to the previously recorded deed. Depending on the error type and gravity, re-acknowledgment may not be required under such circumstances.
In some states, an affidavit of correction or a scrivener’s affidavit may be recorded and serve as notification of an error in a recorded deed. It is usually reserved for minor corrections and typographical mistakes, and it can often be given by persons other than the parties of the original instrument, as long as reasons for the correction and knowledge of the facts corrected are stated and evidence of notification of the original parties or their heirs are provided. However, it does not constitute an actual correction of the original deed in the way a corrective deed does.
Changes affecting the legal description of the property are often sensitive in nature and best handled by a new corrective deed, signed by the original grantor. Some states generally recommend that both parties, that is, the grantor and grantee, sign a corrective instrument to assure valid title. For larger errors or to include/omit a name from the existing deed, a new standard conveyance, such as a warranty or quitclaim deed, may be more appropriate than a correction deed.
Setting up real estate to be transferred upon your death.
Real estate is often one of the most significant assets to consider in a comprehensive estate plan. There are a number of ways to distribute the property after the owner’s death. Some of the more common options are wills, trusts, joint ownership, or transfer on death (TOD) deeds. Note: unless identified otherwise, all definitions originated with Black’s Law Dictionary, Eighth Edition.
Wills are probably the first thing people think of when considering how to handle their assets. More specifically known as a last will and testament, this is the most recent document by which a person directs his or her estate to be distributed upon death. Regardless of other available tools, almost everyone should have something in place for this purpose. A well-constructed will reinforces other estate planning strategies, such as a trust or a transfer on death instrument.
On the surface, wills appear simple, and they can be, but their complexity tends to increase quickly. In addition, changes demand a review of the entire document and can incur legal and filing fees associated with every update. Real property distributed by a will must pass through probate, which adds time and expense to the process. Provisions exist to simplify things for smaller estates, but otherwise, both wills and probate can be tricky and are best approached by an attorney.
A trust is a property interest held by one person (the trustee) at the request of another (the settlor) for the benefit of a third party (the beneficiary). The structure and purpose can vary — there are dozens of different kinds of trusts, and variations within each type. They can exist independently from a will (nontestamentary), or be triggered by provisions found in a will (testamentary). It is important to seek legal guidance when arranging a trust because the wrong choice can have serious financial consequences. Because of these and other issues, it makes sense to consult an attorney to construct, administer, and modify a trust.
Survivorship tenancy is a form of shared ownership that identifies the joint owner’s right to the whole title upon the death of the other joint owner. The remaining owner(s) gains the title as a function of law, meaning it happens almost automatically (in theory). Three primary forms of property ownership support the right of survivorship: most joint tenancy, tenancy by the entirety, and some community property. Note that tenancy by the entirety and community property are only available to couples who are either married or in a legal civil union. For clarity, the right of survivorship must be written into the portion of the deed that identifies how the owners will hold title to the property. The exact format and wording may vary by state, but something along the lines of “John Doe and Jane Doe, as joint tenants with right of survivorship, and not as tenants in common.”
Survivorship tenancies can lead to potential complications. For example, the property could be at risk if one owner has credit problems or other financial issues. Real estate held this way cannot be included in a will except by the last surviving owner. Any sale or transfer of the property requires participation from all co-tenants or the joint tenancy is broken and changes to tenancy in common.
Life is unpredictable, and sometimes the best way to handle an unexpected situation is to change or even revoke (cancel) a beneficiary designation. The established tools discussed above can be cumbersome and expensive to modify, and savvy clients needed more flexibility in their estate planning.
Enhanced life estate, or “Ladybird” deeds, originated as the earliest direct answer to those demands. These deeds provided landowners with a responsive, non-probate option to direct the distribution of their real estate after death. They build on the premise of the life estate, which immediately transfers ownership of the property to the grantee/beneficiary, but allows someone else named in the document to live there for the remainder of his/her life.
Traditional life tenants have little or no control over what happens to the property after they die. The “enhanced” part comes in with the reservation of powers to the grantor/owner on an otherwise standard warranty, grant, or quitclaim deed. When executed, grantors transfer the property to one or more grantees/beneficiaries but convey a life estate back to themselves, and reserve the power to sell the property outright, change or revoke the future transfer, or otherwise use the real estate as they wish, with no restrictions other than the requirement to formally record the changes during their natural lives.
This reservation of powers enables landowners to retain full title rights, preserving their homestead status (if claimed) as well as any deductions, protections, and tax exemptions associated with the real estate during their lifetimes. The remainder, if any, goes to the named grantees/beneficiaries after the owner’s death, thereby avoiding the probate process. Ladybird deeds are most common in Michigan, Florida, California, and Rhode Island. Even though they have been used and accepted for years, enhanced life estate deeds are not generally statutory (Rhode Island is one exception. See R.I.G.L. 34-4-2.1).
Some states decided to take the concept of an enhanced life estate a step further and include laws for real property transfers on death (TOD) in their statutes. For example, Arizona (A.R.S. section 33-405) and Colorado (C.R.S. 15.15.401, et seq.) offer statutory beneficiary deeds. Ohio codified its transfer on death designation affidavit at ORC 5302.22 et seq. While Ladybird and beneficiary deeds, as well as other state-specific instruments, are still in use, a newer, but related, approach is gaining popularity — a transfer on death deed under the Uniform Real Property Transfer on Death Act (URPTODA).
Unlike wills, trusts, or survivorship tenancies, which tend to follow the same rules across the US, TOD instruments vary according to each state’s interpretation and application of the law. Completed in 2009, the URPTODA describes the Uniform Law Commission’s process to unify and standardize the use of these non-probate transfers. In addition to the associated definitions and rules, the Act contains model forms for both a deed and a revocation instrument. So far, Alaska, Hawaii, Washington, Oregon, Nevada, North Dakota, South Dakota, Nebraska, New Mexico, Illinois, West Virginia, Virginia, the District of Columbia, and most recently, Texas have chosen to enact the URPTODA, modified as needed to incorporate existing state laws and customs.
Variations exist among the different transfer on death instruments, but they include specific common features:
All initial and subsequent documents related to the transfer on death must be executed and recorded, in the county where the property is situated, during the owner’s natural life or they have no effect.
Executing transfer on death instruments requires the same competency as a will does.
Transfers on death only convey the owner’s interest in the property, if any, present at the time of death.
Owners retain full title and absolute control over the real estate, its use, and its distribution until death.
Beneficiaries have no rights to or interest in the property during the owner’s lifetime.
The form must state that the transfer is revocable.
The power to revoke is at the heart of transfer on death instruments. Because of this feature, there is no obligation for the owner to provide notice to or collect consideration from the beneficiary (consideration implies a transfer of ownership that is not present here). Even so, many grantors inform beneficiaries about the potential transfer in order to save confusion later.
The property is taken with all restrictions, easements, and debts in place, including mortgages.
TOD instruments must meet state and local content and format requirements for real estate deeds.
There are three primary ways to revoke a recorded transfer on death instrument:
Execute and record an instrument of revocation
Execute and record a new transfer on death instrument, explicitly revoking any previously recorded transfers on death related to the same property
Convey all interest in the property to someone who is uninvolved with the original transfer. This option is possible because the owner retains full ownership of the property, and also because there is no consideration associated with TOD instruments.
The procedure to collect the property transferred at death often differs from state to state. Generally, the beneficiary records an official copy of the owner’s death certificate, accompanied by an affidavit containing details about the interest conveyed and the recorded TOD instrument. Some states simplify the situation and include a specific affidavit form in their statutes.
Transfer on death deeds have some potential drawbacks, though. For example, recorded transfers on death might interfere with eligibility for state and federal assistance programs, and could trigger an estate recovery process for recipients of Medicaid’s long term care benefits. In addition, some people might encounter difficulty obtaining title insurance or mortgaging the property when such documents appear in a title search.
In most cases, beneficiaries take the property with no warranties of title, which could leave them at risk from outside claims against the property if there were any irregularities in the ownership history (chain of title). Two or more beneficiaries vest as tenants in common, meaning that they each get an individual share of the title. There are some exceptions, though, especially with enhanced life estate deeds, so consult a local attorney with specific questions.
Property held jointly requires both owners to join in the TOD deed to ensure transfer to the named beneficiary. Otherwise, the transfer could be invalidated because the property is automatically distributed to the remaining co-owners. Survivorship tenants wishing to execute TOD deeds should review state laws concerning joint tenancy, or seek legal advice.
Transfer on death instruments are flexible and convenient, and offer owners of real property a responsive tool for estate planning. Even so, they are not necessarily appropriate for everyone. Each circumstance is unique, so take the time to review and understand the relevant laws and customs. Finally, don’t hesitate to contact an attorney with specific questions or for complex situations.
Protect Yourself from Unrecorded Real Estate Transfers
In general, a real estate deed must be delivered to and accepted by the grantee(s) to be properly executed or valid. Since most states do not require the grantee’s signature on a deed, the grantor may find it difficult to prove delivery and acceptance. With the Affidavit of Deed form, grantors in a transaction can verify the date of the completed conveyance and protect themselves from future claims or questions when applying for Medicaid or other asset-based benefit programs.
An affidavit is a sworn statement, made in front of a notary or other officer authorized to administer oaths. An affidavit of deed confirms delivery and acceptance of a deed by the grantee, and thereby its validity. It is a useful document because most states only require the grantor’s signature on a deed, so it can be difficult to prove delivery and acceptance, both of which are required to have a properly executed deed in many states.
With a correctly executed affidavit of deed, grantors in a transaction are able to prove the date of the completed conveyance and protect themselves from future claims regarding ownership of their former property. In addition, Medicaid and other asset-based benefit programs often uncover title problems when processing applications. If the grantor is protected by an affidavit of deed, these issues are generally easier to resolve.
Unsuspecting homeowners have found their wages garnished, their credit destroyed, and their tax refunds seized, all because of unrecorded deeds for property they thought they sold. They’ve opened their mail to find bills for back taxes, graffiti-scrubbing services, demolition crews, and trash removal. They answered their front doors to encounter bailiffs brandishing summonses to appear in court. In some cities, people in this situation can be sentenced to probation with the threat of jail if they don’t bring their houses into compliance.
There has been much talk about so-called Zombie Titles in the wake of the recent foreclosure crisis. While an affidavit of deed will not directly help in these situations unless the foreclosing lender accepts a deed in lieu of foreclosure and signs an affidavit, it will help in similar situations caused by unrecorded deeds.
For example, Tom Homeseller inherited a vacant house and no longer wants it. He sells the house to a company that specializes in managing low-end rental properties. Mr. Homeseller prepares the deed, signs it, and delivers it to the company buying the property. Despite the fact that the company placed tenants in the house (and collected rent from them), they never bothered to record the deed. The company also failed to provide suitable property insurance, to pay the real estate taxes, or even to cover the water and sewer bills. A few years go by and the house catches fire. The company walks away from the property.
The tax collectors come after Mr. Homeseller since the deed was never recorded and his name still appears on the title as the owner the property. For the same reason, he is also obligated to pay the removal and cleanup costs of the property as required by local codes. He could even be held responsible for any loss the tenants suffered if the fire was a result of poor maintenance. Without an affidavit of deed, signed by the grantee, Mr. Homeseller will have a difficult time proving that he ever sold the property.
These are just a few reasons why the grantor should require the grantee to sign an affidavit attesting to the deed whenever ownership of or interest in real property is transferred from one party to another.
Information deemed reliable but not guaranteed, you should always confirm this information with the proper agency prior to acting. The materials available at this web site are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. These materials are intended, but not promised or guaranteed to be current, complete, or up-to-date.
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An Estoppel Certificate (or Estoppel Letter) is a document often used in due diligence in Real estateandmortgage activities. It is a document often completed, but at least signed, by a tenant used in their landlord’s proposed transaction with a third party. A mortgage lender intending to collateralize a tenant-occupied property or a purchaser intending to purchase such a property will often want to verify certain representations made by the landlord.
An estoppel certificate provides confirmation by the tenant of the terms of the rental agreement, such as the amount of rent, the amount of security deposit, and the expiration of the agreement. Further, the estoppel certificate may give the opportunity to the tenant to explain if they may have any claims against the landlord, which may affect a buyer’s or lender’s decision to complete the proposed transaction.
Some lease agreements require the tenant to complete such a certificate or to waive their responses by allowing the landlord to complete the estoppel certificate under certain circumstances.[
If the language in the lease so provides, a tenant can be in default under a lease after failing to comply with a request from the landlord for an estoppel certificate. The majority of commercial leases include a provision establishing the requirements for the provision of a tenant estoppel certificate following the landlord’s request.
At the coronavirus pandemic’s onset in March 2020, millions of people saw cuts to their work hours, and millions more were laid off. The result of this was an inability to pay rent, and in response to lost wages, the federal government offered rental assistance through the CARES Act, while a September executive order directed federal agencies to halt evictions for some renters.
One year later, the pandemic’s persistence threatens to expose the cracks in federal and state policy designed to absorb renter shock and prevent landlords from evicting tenants who cannot pay rent. Expiring eviction moratoriums raise the question that housing justice advocates have long wondered: How will we face a potential eviction cliff?
Advocates are worried that tens of billions in rent debt coupled with an expiring eviction moratorium will lead to mass evictions. Rent debt (the unpaid rent between the months of March 2020 and April 2021) plagues as many as 14.2 million renter households across the country. There are about 43 million renting households in the U.S., accounting for nearly one-third of the country’s housing market. And much like the pandemic itself, rent debt — and a potential eviction — is a crisis that also disproportionately burdens the least resourced in the country, like poor people, people of color, disabled people, and immigrants.
An eviction crisis was brewing even before the pandemic struck, prompted by multiple forms of income inequality and socioeconomic class stratification. According to the non-partisan Economic Policy Institute, wages for low-earning people have not risen in recent decades while income for the very rich has skyrocketed. Taken together, this led to a widening income gap between low-wage workers (who tend to be renters) and those in the top 10 percent of earners (who are likely to be salaried white-collar workers).
Because of a system that increases profits for business owners while keeping wages low for workers, renters have only saved 2.4 percent of their income in the past two decades, or about $440 in today’s dollars, according to the Urban Institute. While wages have plateaued, the cost of rent has continued to increase across the country in the past decade — as much as 90 percent in large cities. In some cases, renters are paying over 70 percent of their income on housing costs, leaving little money for food and other expenses while making saving extraordinarily difficult, if not impossible.
Behind the economics of the situation are the political conditions: The federal government has never guaranteed affordable home purchases and there is no federal right to housing. American social and legal structures don’t have adequate backstops and protections for renters, and generational wealth is built and sustained through property ownership.
Renters who do face eviction see a ripple of negative effects. Landlords are less likely to rent to those who’ve faced eviction proceedings, which means that renters might be forced into choosing homes in neighborhoods with under-resourced schools, fewer hospitals, fewer grocery stores, and less public transportation, meaning that a home isn’t just a home: neighborhoods can be determinative of life outcome.
“There are so many renters who are basically facing homelessness,” says Shanti Singh, the communications and legislative director of Tenants Together, a California-based coalition of tenant’s rights organizations. Without state or federal legislative action and broad cultural change, Singh says that California’s 18 million renters could be headed for the eviction cliff.
In California, renters face $2.4 billion in rent debt, which Singh explains will remain with families long after individuals are vaccinated. While we know that the economic fallout of the pandemic will persist, it’s unclear if state and federal protections will. Singh says that at the very least, California needs to pass a legislative extension of protection against evictions and institute policies that achieve a just recovery where renters are able to find work again without having to shoulder the burden of repaying thousands of dollars of rent debt.
Other than legislative proposals to forgive debt increase wages, and allow renters to save money and build wealth, Singh says that broad cultural shifts are needed to value renters in the ways homeowners are. “Renters blame themselves for what’s happened to them [and] for their inability to pay rent, [but] they did not lose their jobs on purpose,” Singh says. “When you see the ways people take it out on themselves, it speaks to [the] culture that we have to change where we blame the most vulnerable people in our society.”
At the coronavirus pandemic’s onset in March 2020, millions of people saw cuts to their work hours, and millions more were laid off. The result of this was an inability to pay rent, and in response to lost wages, the federal government offered rental assistance through the CARES Act, while a September executive order directed federal agencies to halt evictions for some renters.
One year later, the pandemic’s persistence threatens to expose the cracks in federal and state policy designed to absorb renter shock and prevent landlords from evicting tenants who cannot pay rent. Expiring eviction moratoriums raise the question that housing justice advocates have long wondered: How will we face a potential eviction cliff?
Advocates are worried that tens of billions in rent debt coupled with an expiring eviction moratorium will lead to mass evictions. Rent debt (the unpaid rent between the months of March 2020 and April 2021) plagues as many as 14.2 million renter households across the country. There are about 43 million renting households in the U.S., accounting for nearly one-third of the country’s housing market. And much like the pandemic itself, rent debt — and a potential eviction — is a crisis that also disproportionately burdens the least resourced in the country, like poor people, people of color, disabled people, and immigrants.
An eviction crisis was brewing even before the pandemic struck, prompted by multiple forms of income inequality and socioeconomic class stratification. According to the non-partisan Economic Policy Institute, wages for low-earning people have not risen in recent decades while income for the very rich has skyrocketed. Taken together, this led to a widening income gap between low-wage workers (who tend to be renters) and those in the top 10 percent of earners (who are likely to be salaried white-collar workers).
Because of a system that increases profits for business owners while keeping wages low for workers, renters have only saved 2.4 percent of their income in the past two decades, or about $440 in today’s dollars, according to the Urban Institute. While wages have plateaued, the cost of rent has continued to increase across the country in the past decade — as much as 90 percent in large cities. In some cases, renters are paying over 70 percent of their income on housing costs, leaving little money for food and other expenses while making saving extraordinarily difficult, if not impossible.
Behind the economics of the situation are the political conditions: The federal government has never guaranteed affordable home purchases and there is no federal right to housing. American social and legal structures don’t have adequate backstops and protections for renters, and generational wealth is built and sustained through property ownership.
Renters who do face eviction see a ripple of negative effects. Landlords are less likely to rent to those who’ve faced eviction proceedings, which means that renters might be forced into choosing homes in neighborhoods with under-resourced schools, fewer hospitals, fewer grocery stores, and less public transportation, meaning that a home isn’t just a home: neighborhoods can be determinative of life outcome.
“There are so many renters who are basically facing homelessness,” says Shanti Singh, the communications and legislative director of Tenants Together, a California-based coalition of tenant’s rights organizations. Without state or federal legislative action and broad cultural change, Singh says that California’s 18 million renters could be headed for the eviction cliff.
In California, renters face$2.4 billion in rent debt, which Singh explains will remain with families long after individuals are vaccinated. While we know that the economic fallout of the pandemic will persist, it’s unclear if state and federal protections will. Singh says that at the very least, California needs to pass a legislative extension of protection against evictions and institute policies that achieve a just recovery where renters are able to find work again without having to shoulder the burden of repaying thousands of dollars of rent debt.
Other than legislative proposals to forgive debt increase wages, and allow renters to save money and build wealth, Singh says that broad cultural shifts are needed to value renters in the ways homeowners are. “Renters blame themselves for what’s happened to them [and] for their inability to pay rent, [but] they did not lose their jobs on purpose,” Singh says. “When you see the ways people take it out on themselves, it speaks to [the] culture that we have to change where we blame the most vulnerable people in our society.”
Buying subject-to means buying a home subject to the existing mortgage. It means the seller is not paying off the existingmortgage. Instead, the buyer is taking over the payments. The unpaid balance of the existing mortgage is then calculated as part of the buyer’s purchase price.
Under a subject-to agreement, the buyer continues making payments to the seller’s mortgage company. However, there’s no official agreement in place with the lender. The buyer has no legal obligation to make the payments. Should the buyer fail to repay the loan, the home could be lost to foreclosure. However, it would be in the original mortgagee’s name (i.e., the seller).
Reasons a Buyer May Purchase a Subject-To Property
The biggest perk of buying subject-to real estate is that it reduces the costs to buy the home. There are no closing costs, origination fees, broker commissions, or other costs. For the real estate investor who plans to rent or re-sell the property down the line, that means more room for profits.
For most homebuyers, the primary reason for buying subject-to properties is to take over the seller’s existing interest rate. If present interest rates are at 7% and a seller has a 5% fixed interest rate, that 2% variance can make a huge difference in the buyer’s monthly payment. For example:
A $200,000 mortgage at a 5% interest rate is amortized at a payment of $1,073.64 per month
A $200,000 mortgage at a 7% interest rate is amortized at a payment of $1,330.60 per month
The monthly savings to a buyer under these circumstances is $256.96 or $3,083.52 per year
Another reason certain buyers are interested in purchasing a home subject-to is they may not qualify for a traditional loan with favorable interest rates. Taking over the existing mortgage loan may offer better terms and fewer interest costs over time.
Buying subject-to homes is a smart way for real estate investors to get deals. Often, investors will use county records to locate borrowers who are currently in foreclosure. Making them a low, subject-to offer can help them avoid foreclosure (and its impact on their credit) and result in a high-profit property for the investor.
Three Types of Subject-To Options
A subject-to sale does not necessarily involveowner financing, but it could. Whether the seller carries any type of financing depends on whether they wrap the mortgage or the amount of the down payment versus the purchase price.
There are three types of subject-to options:
A Straight Subject-To Cash-To-Loan
The most common type of subject-to is when a buyer pays in cash the difference between the purchase price and the seller’s existing loan balance. For example, if the seller’s existing loan balance is $150,000 and the sales price is $200,000, the buyer must give the seller $50,000.
A Straight Subject-To With Seller Carryback
Seller carrybacks, also known as seller or owner financing, are most commonly found in the form of a second mortgage. A seller carryback could also be a land contract or alease option sale instrument. For example, let’s say the home’s sales price is $200,000, with an existing loan balance of $150,000. The buyer is making a down payment of $20,000. The seller would carry the remaining balance of $30,000 at a separate interest rate and terms negotiated between the parties. The buyer would agree to make one payment to the seller’s lender and a separate payment at a different interest rate to the seller.
Wrap-Around Subject-To
A wrap-around subject-to gives the seller an override of interest because the seller makes money on the existing mortgage balance. For example, an existing mortgage carries an interest rate of 5%. If the sales price is $200,000 and the buyer puts down $20,000, the seller’s carryback would be $180,000. At a rate of 6%, the seller makes 1% on the existing mortgage of $150,000 and 6% on the balance of $30,000. The buyer would pay 6% on $180,000.
The Difference Between a Subject-To and a Loan Assumption
In a subject-to transaction, neither the seller nor the buyer tells the existing lender that the seller has sold the property. The buyer is now making the payments. The buyer did not obtain the bank’s permission to take over the loan. Lenders put special verbiage into their mortgages and trust deeds that give the lender the right to accelerate the loan and invoke a “due-on” clause in the event of a transfer. This clause simply means the loan balance is due in full.
Not every bank will call a loan due and payable upon transfer. In certain situations, some banks are simply happy that somebody—anybody—is making the payments. But banks can exercise their right to call a loan due to the acceleration clause in the mortgage or trust deed, which is a risk for the buyer. If the buyer can’t pay off the loan upon the bank’s demand, it couldinitiate foreclosure.
If a buyer makes a loan assumption, the buyer formally assumes the loan with the bank’s permission. This method means the seller’s name is removed from the loan, and the buyer qualifies for the loan, just like any other kind of financing. Generally, banks charge the buyer an assumption fee to process a loan assumption. The fee is much less than the fees to obtain aconventional loan.FHA loans and VA loans allow for a loan assumption. However, most conventional loans do not.
Pros and Cons of Buying Subject-To Real Estate
Subject-to properties mean a faster, easier home purchase, no costly or hard-to-qualify-for mortgage loans, and potentially more profits if you’re looking to flip or resell the home.
On the downside, subject-to homes do put buyers at risk. Since the property is still legally the seller’s liability, it could be seized should they enter bankruptcy. Additionally, the lender could require a full payoff if it notices the home has transferred hands. There can also be complications with home insurance policies.
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Have you claimed the first-time homebuyer tax credit? For some buyers, it’s time to start repaying Uncle Sam.
Introduced in 2008, the first-time homebuyer tax credit originally was a type of interest-free loan. Anyone who purchased a house in 2008 and claimed the credit the following spring on their tax return would have to repay the sum starting two years later.
That means the first payment is due in April.
The government waived the payback rule for homes purchased in 2009 and after unless the home ceases to be the taxpayer’s main residence within a three-year period following the purchase.
Still, the Internal Revenue Service maintains specific rules for getting the full benefit of the tax credit.
Here’s what you need to know:
The repayment plan
If you claimed the first-time homebuyer tax credit in 2008, you have to start paying it back this tax-filing season. Repayment is made in equal installments over 15 years. So, if you claimed the maximum $7,500 credit, you’ll owe $500 per year.
To make the payment, you have to file Form 5405, which is available in the free and basic versions of most tax-prep software, including those offered through the Internal Revenue Service’s Free File program.
Don’t know how much you owe? Check your mail: The IRS sent letters outlining the amount of credit you received and what you owe this year.
Exceptions to the rule
There are few ways to avoid repaying the credit, unfortunately.
“You can’t get around this,” said Mark Luscombe, principal federal tax analyst for CCH, a provider of tax-prep software. “Even though Congress eliminated the repayment requirement in 2009, they didn’t do it retroactively.”
Some exceptions exist, however.
For one, if you’ve since gotten divorced and transferred the house to your ex as part of the settlement, you are no longer responsible for payments. Your ex-spouse is. Or, if you’ve sold the home, you owe only up to the amount of gain you made on the sale. In other words, if you pocketed $5,000 from selling your home, you’re on the hook for only $5,000, not the full $7,500, if you claimed the maximum credit.
If you incurred a loss, your debt to the IRS gets erased.
To see a complete list of exceptions, visit tinyurl.com/co4sng.
You could owe the lump sum
If you sell your home or stop using the property as your main residence, the 15-year repayment plan goes out the window, and the full credit (or balance) is due in full that tax-filing season.
A similar rule applies if you claimed the first-time homebuyer’s credit in 2009 or 2010: For those buyers only, you owe the full credit if the home no longer serves as your principal residence within 36 months of buying the property.
Sell after that three-year period, and you don’t owe the credit.
The maximum credit in 2009 and 2010 was $8,000 if you were buying a principal home for the first time, or $6,500 if you had been a homeowner. The government considers first-time homebuyers those “taxpayers who have not owned another principal residence at any time during the three years prior to the date of purchase,” according to IRS.gov.
An assignment and assumption agreement is used after a contract is signed, in order to transfer one of the contracting party’s rights and obligations to a third party who was not originally a party to the contract. The party making the assignment is called the assignor, while the third party accepting the assignment is known as the assignee.
In order for an assignment and assumption agreement to be valid, the following criteria need to be met:
The initial contract must provide for the possibility of assignment by one of the initial contracting parties.
The assignor must agree to assign their rights and duties under the contract to the assignee.
The assignee must agree to accept, or “assume,” those contractual rights and duties.
The other party to the initial contract must consent to the transfer of rights and obligations to the assignee.
A standard assignment and assumption contract is often a good starting point if you need to enter into an assignment and assumption agreement. However, for more complex situations, such as an assignment and amendment agreement in which several of the initial contract terms will be modified, or where only some, but not all, rights and duties will be assigned, it’s a good idea to retain the services of an attorney who can help you draft an agreement that will meet all your needs.
The Basics of Assignment and Assumption
When you’re ready to enter into an assignment and assumption agreement, it’s a good idea to have a firm grasp of the basics of assignment:
First, carefully read and understand the assignment and assumption provision in the initial contract. Contracts vary widely in their language on this topic, and each contract will have specific criteria that must be met in order for a valid assignment of rights to take place.
All parties to the agreement should carefully review the document to make sure they each know what they’re agreeing to, and to help ensure that all important terms and conditions have been addressed in the agreement.
Until the agreement is signed by all the parties involved, the assignor will still be obligated for all responsibilities stated in the initial contract. If you are the assignor, you need to ensure that you continue with business as usual until the assignment and assumption agreement has been properly executed.
Filling in the Assignment and Assumption Agreement
Unless you’re dealing with a complex assignment situation, working with a template often is a good way to begin drafting an assignment and assumption agreement that will meet your needs. Generally speaking, your agreement should include the following information:
Identification of the existing agreement, including details such as the date it was signed and the parties involved, and the parties’ rights to assign under this initial agreement
The effective date of the assignment and assumption agreement
Identification of the party making the assignment (the assignor), and a statement of their desire to assign their rights under the initial contract
Identification of the third party accepting the assignment (the assignee), and a statement of their acceptance of the assignment
Identification of the other initial party to the contract, and a statement of their consent to the assignment and assumption agreement
A section stating that the initial contract is continued; meaning, that, other than the change to the parties involved, all terms and conditions in the original contract stay the same
In addition to these sections that are specific to an assignment and assumption agreement, your contract should also include standard contract language, such as clauses about indemnification, future amendments, and governing law.
Sometimes circumstances change, and as a business owner you may find yourself needing to assign your rights and duties under a contract to another party. A properly drafted assignment and assumption agreement can help you make the transfer smoothly while, at the same time, preserving the cordiality of your initial business relationship under the original contract.
An assignment and assumption agreement is used after a contract is signed, in order to transfer one of the contracting party’s rights and obligations to a third party who was not originally a party to the contract. The party making the assignment is called the assignor, while the third party accepting the assignment is known as the assignee.
In order for an assignment and assumption agreement to be valid, the following criteria need to be met:
The initial contract must provide for the possibility of assignment by one of the initial contracting parties.
The assignor must agree to assign their rights and duties under the contract to the assignee.
The assignee must agree to accept, or “assume,” those contractual rights and duties.
The other party to the initial contract must consent to the transfer of rights and obligations to the assignee.
A standard assignment and assumption contract is often a good starting point if you need to enter into an assignment and assumption agreement. However, for more complex situations, such as an assignment and amendment agreement in which several of the initial contract terms will be modified, or where only some, but not all, rights and duties will be assigned, it’s a good idea to retain the services of an attorney who can help you draft an agreement that will meet all your needs.
The Basics of Assignment and Assumption
When you’re ready to enter into an assignment and assumption agreement, it’s a good idea to have a firm grasp of the basics of assignment:
First, carefully read and understand the assignment and assumption provision in the initial contract. Contracts vary widely in their language on this topic, and each contract will have specific criteria that must be met in order for a valid assignment of rights to take place.
All parties to the agreement should carefully review the document to make sure they each know what they’re agreeing to, and to help ensure that all important terms and conditions have been addressed in the agreement.
Until the agreement is signed by all the parties involved, the assignor will still be obligated for all responsibilities stated in the initial contract. If you are the assignor, you need to ensure that you continue with business as usual until the assignment and assumption agreement has been properly executed.
Filling in the Assignment and Assumption Agreement
Unless you’re dealing with a complex assignment situation, working with a template often is a good way to begin drafting an assignment and assumption agreement that will meet your needs. Generally speaking, your agreement should include the following information:
Identification of the existing agreement, including details such as the date it was signed and the parties involved, and the parties’ rights to assign under this initial agreement
The effective date of the assignment and assumption agreement
Identification of the party making the assignment (the assignor), and a statement of their desire to assign their rights under the initial contract
Identification of the third party accepting the assignment (the assignee), and a statement of their acceptance of the assignment
Identification of the other initial party to the contract, and a statement of their consent to the assignment and assumption agreement
A section stating that the initial contract is continued; meaning, that, other than the change to the parties involved, all terms and conditions in the original contract stay the same
In addition to these sections that are specific to an assignment and assumption agreement, your contract should also include standard contract language, such as clauses about indemnification, future amendments, and governing law.
Sometimes circumstances change, and as a business owner you may find yourself needing to assign your rights and duties under a contract to another party. A properly drafted assignment and assumption agreement can help you make the transfer smoothly while, at the same time, preserving the cordiality of your initial business relationship under the original contract.
When dealing with the distribution of an estate after a person dies, you will likely either hear the term executor’s deed and administrator’s dee d. Both are documents designed to officially distribute property and transfer it to the decedents, but an executor’s deed is used when the deceased left a will behind. An administrator’s deed is the document of someone who died without official notification of how he or she wanted their property distributed.
An executor is the person appointed by the deceased to see to it that property is distributed according to the will. The executor may be named in the will itself, or may have been officially given the role before the person in question passed away. The executor may also be an official, such as a lawyer – or it may be a family member, spouse, or friend. This depends entirely on the wishes of the deceased. Should a person die with property left behind and no will stating how to distribute it, the probate court will take responsibility for the property and appoint an administrator. This person is then given the official power to distribute the property. Legally, none of the family of the deceased has the right to this property until it has been officially handled by the probate court and released to them by the administrator. Both executors and administrators must prepare official deeds to transfer property titles into the names of those receiving them. The deeds generally must be officially worded and state the process by which the decision to transfer the property was made, whether it is in accordance with a will or by the judgment of the court-appointed administrator. The deed must be witnessed and notarized, and then becomes a legal and binding document.
In any case, after a death, you should strongly consider speaking with a lawyer to handle the distribution of assets and other legal complexities that arise.
What is the difference between an executors deed and an administrators deed?
When dealing with the distribution of an estate after a person dies, you will likely either hear the term executor’s deed and administrator’s dee d. Both are documents designed to officially distribute property and transfer it to the decedents, but an executor’s deed is used when the deceased left a will behind. An administrator’s deed is the document of someone who died without official notification of how he or she wanted their property distributed.
An executor is the person appointed by the deceased to see to it that property is distributed according to the will. The executor may be named in the will itself, or may have been officially given the role before the person in question passed away. The executor may also be an official, such as a lawyer – or it may be a family member, spouse, or friend. This depends entirely on the wishes of the deceased. Should a person die with property left behind and no will stating how to distribute it, the probate court will take responsibility for the property and appoint an administrator. This person is then given the official power to distribute the property. Legally, none of the family of the deceased has the right to this property until it has been officially handled by the probate court and released to them by the administrator. Both executors and administrators must prepare official deeds to transfer property titles into the names of those receiving them. The deeds generally must be officially worded and state the process by which the decision to transfer the property was made, whether it is in accordance with a will or by the judgment of the court-appointed administrator. The deed must be witnessed and notarized, and then becomes a legal and binding document.
In any case, after a death, you should strongly consider speaking with a lawyer to handle the distribution of assets and other legal complexities that arise.
IS AN ORAL AGREEMENT FOR THE SALE OF REAL ESTATE ENORCEABLE?
Generally, a verbal contract is binding in Missouri. However, there are certain circumstances in Missouri when a verbal contract is not enforceable. Those circumstances are described in Missouri’s “statute of frauds”. According to the statute, the following verbal contracts are not binding.
EXECUTOR OR ADMINISTRATOR
Any administrator of an estate will not bind the estate to pay for a claim against the estate unless the agreement is in writing and signed by the administrator.
PROMISE TO PAY THE DEBT OF ANOTHER
In Missouri, a guaranty to pay the debt of another person must be in writing and signed by the guarantor. A guaranty is a contract whereby the guarantor agrees to pay the debt of another in the event of a default. In Capital Group, Inc. v. Collier, defendant was the President of a company. The company entered into a credit agreement with plaintiff. The agreement signed by the defendant said that the undersigned will be liable for the payment “of any and all goods and/or services furnished by [plaintiff]”.
Plaintiff contended that defendant was personally liable for the debt of the company, because he signed the agreement without indicating his title. The court disagreed, holding that the agreement did not clearly show that defendant intended to guaranty payments owed under the agreement.
AGREEMENT IN CONSIDERATION OF MARRIAGE
In the Estate of Kilbourn, Wayne and Marjorie Kilbourn entered into an antenuptial agreement stating that they relinquished all rights to the property of the other. Marjorie then died, and Wayne asserted that her estate owed him for labor and other things he provided to her property when she was alive. The court denied his claim and said that any modification of the antenuptial agreement must have been in a writing signed by Marjorie, as the antenuptial agreement had been made in consideration of the marriage.
CONTRACT FOR THE SALE OF LAND
In Shaffer v. Hines, the administrator of an estate obtained an order from the probate court to sell certain land owned by the estate. Defendant was the high bidder at the auction. Defendant tendered a check to the attorney for the administrator, made payable to the estate. He later stopped payment on the check. The administrator then sued the defendant, claiming that he breached his verbal contract to purchase the land. Both parties agreed that the check was not a written agreement to purchase the land. The court of appeals held that the verbal contract was not enforceable pursuant to Missouri’s statute of frauds.
LEASE LONGER THAN ONE YEAR
A lease for more than one year must be in writing and signed by the party against whom a breach is asserted. A lease for more than one year that is not in writing and signed is not a lease. Rather, the tenants are tenants at will. In fact, pursuant to Section 432.050 RSMo., any lease not in writing and signed creates a tenancy at will. A tenant at will may be terminated with one month’s notice. Missouri courts have interpreted the one month period to encompass one rent period. For example, if rent is due March 1st, the notice must be served on the tenant before March 1st. The tenancy will then terminate on April 1st.
AGREEMENT NOT TO BE PERFORMED WITHIN ONE YEAR
An agreement that cannot be performed within one year must be in writing and signed. In Sales Service v. Daewoo, plaintiff agreed to provide consultation services to defendant over three years in exchange for $40,000 per year. Plaintiff was also to receive a percentage of defendant’s sales during the three years. Plaintiff sent a memo to defendant to this effect, but defendant never signed it. Defendant sent numerous signed memos to plaintiff related to the agreement, but none of them stated that the agreement was for three years. After 23 months, defendant informed plaintiff that defendant would no longer perform the services of the agreement. Plaintiff sued defendant for the amount plaintiff would have received under the rest of the contract. However, the agreement had to be in a signed writing, because it could not be performed within one year.
TAKE-AWAY
Most rules have exceptions. Such is true with Missouri’s statute of frauds. In Missouri, if a party committed a fraud in the formation of a verbal contract covered by the statute of frauds, then the courts nonetheless have the discretion to enforce such verbal contract. However, the verbal contract must still conform to all of Missouri’s other requirements for the formation of a contract.
IS AN ORAL AGREEMENT FOR THE SALE OF REAL ESTATE ENORCEABLE?
Generally, a verbal contract is binding in Missouri. However, there are certain circumstances in Missouri when a verbal contract is not enforceable. Those circumstances are described in Missouri’s “statute of frauds”. According to the statute, the following verbal contracts are not binding.
EXECUTOR OR ADMINISTRATOR
Any administrator of an estate will not bind the estate to pay for a claim against the estate unless the agreement is in writing and signed by the administrator.
PROMISE TO PAY THE DEBT OF ANOTHER
In Missouri, a guaranty to pay the debt of another person must be in writing and signed by the guarantor. A guaranty is a contract whereby the guarantor agrees to pay the debt of another in the event of a default. In Capital Group, Inc. v. Collier, defendant was the President of a company. The company entered into a credit agreement with plaintiff. The agreement signed by the defendant said that the undersigned will be liable for the payment “of any and all goods and/or services furnished by [plaintiff]”.
Plaintiff contended that defendant was personally liable for the debt of the company, because he signed the agreement without indicating his title. The court disagreed, holding that the agreement did not clearly show that defendant intended to guaranty payments owed under the agreement.
AGREEMENT IN CONSIDERATION OF MARRIAGE
In the Estate of Kilbourn, Wayne and Marjorie Kilbourn entered into an antenuptial agreement stating that they relinquished all rights to the property of the other. Marjorie then died, and Wayne asserted that her estate owed him for labor and other things he provided to her property when she was alive. The court denied his claim and said that any modification of the antenuptial agreement must have been in a writing signed by Marjorie, as the antenuptial agreement had been made in consideration of the marriage.
CONTRACT FOR THE SALE OF LAND
In Shaffer v. Hines, the administrator of an estate obtained an order from the probate court to sell certain land owned by the estate. Defendant was the high bidder at the auction. Defendant tendered a check to the attorney for the administrator, made payable to the estate. He later stopped payment on the check. The administrator then sued the defendant, claiming that he breached his verbal contract to purchase the land. Both parties agreed that the check was not a written agreement to purchase the land. The court of appeals held that the verbal contract was not enforceable pursuant to Missouri’s statute of frauds.
LEASE LONGER THAN ONE YEAR
A lease for more than one year must be in writing and signed by the party against whom a breach is asserted. A lease for more than one year that is not in writing and signed is not a lease. Rather, the tenants are tenants at will. In fact, pursuant to Section 432.050 RSMo., any lease not in writing and signed creates a tenancy at will. A tenant at will may be terminated with one month’s notice. Missouri courts have interpreted the one month period to encompass one rent period. For example, if rent is due March 1st, the notice must be served on the tenant before March 1st. The tenancy will then terminate on April 1st.
AGREEMENT NOT TO BE PERFORMED WITHIN ONE YEAR
An agreement that cannot be performed within one year must be in writing and signed. In Sales Service v. Daewoo, plaintiff agreed to provide consultation services to defendant over three years in exchange for $40,000 per year. Plaintiff was also to receive a percentage of defendant’s sales during the three years. Plaintiff sent a memo to defendant to this effect, but defendant never signed it. Defendant sent numerous signed memos to plaintiff related to the agreement, but none of them stated that the agreement was for three years. After 23 months, defendant informed plaintiff that defendant would no longer perform the services of the agreement. Plaintiff sued defendant for the amount plaintiff would have received under the rest of the contract. However, the agreement had to be in a signed writing, because it could not be performed within one year.
TAKE-AWAY
Most rules have exceptions. Such is true with Missouri’s statute of frauds. In Missouri, if a party committed a fraud in the formation of a verbal contract covered by the statute of frauds, then the courts nonetheless have the discretion to enforce such verbal contract. However, the verbal contract must still conform to all of Missouri’s other requirements for the formation of a contract.
So, what kind of paperwork will you have to sign when you close? While the process can vary from one borrower to the next, there are some commonalities that apply to most situations. Here’s a checklist of common documents that are needed for the mortgage closing process.
1. The Mortgage Promissory Note
This is one of the most important documents home buyers sign on closing day, and you’ll soon understand why. This doc is also referred to as the “mortgage note” for short, and sometimes just “the note.”
By signing this document, you are agreeing to repay the mortgage loan as outlined within the document itself. The promissory note will contain important details relating to your loan, such as the total amount you owe, the interest rate assigned, the length of the repayment period (e.g., 30 years), and other key details.
It also specifies where the payments are to be sent, and what happens in the even of default (where the borrower fails to repay the debt).
As a home buyer and borrower, it’s crucial that you read this mortgage document at closing and ask questions about anything you don’t understand. The promissory note obligates you to repay the debt in the manner specified. So you want to make sure you understand it prior to signing.
2. The Mortgage / Deed of Trust / Security Instrument
When you sign the previous closing document above (the promissory note), you’re agreeing to repay the loan in the manner outlined within that document. The actual mortgage or deed of trust, on the other hand, is what gives the lender a legal right to take the home back through foreclosure — should you fail to repay the debt.
This closing document is also referred to as the “security instrument.” What you need to know is this: When you hear your lender talk about “the mortgage,” they’re most likely referring to this document in particular.
The deed of trust is a fairly lengthy form, and most of it is boilerplate. As a borrower, you’ll want to pay particular attention to the fill-in-the-blank portions of the deed of trust / security instrument. Those are the sections that will contain information specific to your loan.
3. The deed (for property transfer).
You’ll notice there are two closing documents on this list with “deed” in the title. They’re actually two separate things. Bear with me.
The deed of trust mentioned earlier (a.k.a., “the mortgage”) gives the lender the right to foreclose on the home if you don’t make your payments. The “deed” covered here is the document that transfers ownership of the property from the seller to the buyer.
The terminology here is confusing. So let’s clarify it again:
Deed: Document used to give the new owner rights to the property.
Deed of trust: Document that allows the lender to take the home in default scenarios.
4. The Closing Disclosure
This is another important document home buyers sign at closing. Actually, you should receive this disclosure before the day you close. Federal law requires mortgage lenders to give borrowers a Closing Disclosure document three days prior to the scheduled close. This gives you time to review the disclosure and, if necessary, resolve any issues.
As its title suggests, the Closing Disclosure shows how much money you’ll have to pay on the day you close. This includes whatever down payment is due, along with all of your other closing costs. Collectively, these items are referred to as your “cash to close” amount.
In a typical home-buying scenario, the borrower will bring this amount to the closing in the form of a cashier’s check. A wire transfer is another option, but most people bring a check.
Home buyers should review this mortgage closing document as soon as they receive it. If something looks different from what you expected, be sure to ask your loan officer and/or escrow agent about it. The idea is to get your questions answered and resolve any issues prior to the closing day, to avoid unwanted delays.
5. The initial escrow disclosure statement.
This document, which home buyers usually sign at closing, shows the specific charges you will pay into your escrow account each month (in accordance with the terms of your mortgage agreement).
An escrow account is a special kind of account used to pay property-related expenses. As a homeowner, you pay money into the account. And your mortgage lender or bank then uses those funds to pay your property taxes and home insurance premiums on your behalf.
When you sign the initial escrow disclosure document at closing, you are basically agreeing to the terms of that arrangement.
6. The transfer tax declaration (in some states)
This is a regional closing document that’s required in some states but not in others. So, depending on where you live, you might have to sign this document when you close on a home as well.
It’s primarily used in states (and counties) that charge a property transfer tax. Both the home buyer and seller have to sign the transfer tax declaration, at or before closing.
So, what kind of paperwork will you have to sign when you close? While the process can vary from one borrower to the next, there are some commonalities that apply to most situations. Here’s a checklist of common documents that are needed for the mortgage closing process.
1. The Mortgage Promissory Note
This is one of the most important documents home buyers sign on closing day, and you’ll soon understand why. This doc is also referred to as the “mortgage note” for short, and sometimes just “the note.”
By signing this document, you are agreeing to repay the mortgage loan as outlined within the document itself. The promissory note will contain important details relating to your loan, such as the total amount you owe, the interest rate assigned, the length of the repayment period (e.g., 30 years), and other key details.
It also specifies where the payments are to be sent, and what happens in the even of default (where the borrower fails to repay the debt).
As a home buyer and borrower, it’s crucial that you read this mortgage document at closing and ask questions about anything you don’t understand. The promissory note obligates you to repay the debt in the manner specified. So you want to make sure you understand it prior to signing.
2. The Mortgage / Deed of Trust / Security Instrument
When you sign the previous closing document above (the promissory note), you’re agreeing to repay the loan in the manner outlined within that document. The actual mortgage or deed of trust, on the other hand, is what gives the lender a legal right to take the home back through foreclosure — should you fail to repay the debt.
This closing document is also referred to as the “security instrument.” What you need to know is this: When you hear your lender talk about “the mortgage,” they’re most likely referring to this document in particular.
The deed of trust is a fairly lengthy form, and most of it is boilerplate. As a borrower, you’ll want to pay particular attention to the fill-in-the-blank portions of the deed of trust / security instrument. Those are the sections that will contain information specific to your loan.
3. The deed (for property transfer).
You’ll notice there are two closing documents on this list with “deed” in the title. They’re actually two separate things. Bear with me.
The deed of trust mentioned earlier (a.k.a., “the mortgage”) gives the lender the right to foreclose on the home if you don’t make your payments. The “deed” covered here is the document that transfers ownership of the property from the seller to the buyer.
The terminology here is confusing. So let’s clarify it again:
Deed: Document used to give the new owner rights to the property.
Deed of trust: Document that allows the lender to take the home in default scenarios.
4. The Closing Disclosure
This is another important document home buyers sign at closing. Actually, you should receive this disclosure before the day you close. Federal law requires mortgage lenders to give borrowers a Closing Disclosure document three days prior to the scheduled close. This gives you time to review the disclosure and, if necessary, resolve any issues.
As its title suggests, the Closing Disclosure shows how much money you’ll have to pay on the day you close. This includes whatever down payment is due, along with all of your other closing costs. Collectively, these items are referred to as your “cash to close” amount.
In a typical home-buying scenario, the borrower will bring this amount to the closing in the form of a cashier’s check. A wire transfer is another option, but most people bring a check.
Home buyers should review this mortgage closing document as soon as they receive it. If something looks different from what you expected, be sure to ask your loan officer and/or escrow agent about it. The idea is to get your questions answered and resolve any issues prior to the closing day, to avoid unwanted delays.
5. The initial escrow disclosure statement.
This document, which home buyers usually sign at closing, shows the specific charges you will pay into your escrow account each month (in accordance with the terms of your mortgage agreement).
An escrow account is a special kind of account used to pay property-related expenses. As a homeowner, you pay money into the account. And your mortgage lender or bank then uses those funds to pay your property taxes and home insurance premiums on your behalf.
When you sign the initial escrow disclosure document at closing, you are basically agreeing to the terms of that arrangement.
6. The transfer tax declaration (in some states)
This is a regional closing document that’s required in some states but not in others. So, depending on where you live, you might have to sign this document when you close on a home as well.
It’s primarily used in states (and counties) that charge a property transfer tax. Both the home buyer and seller have to sign the transfer tax declaration, at or before closing.
A final walkthrough is just like it sounds—it’s a walk through the house you’re about to buy. It’s an opportunity for you and your real estate agent to spend a few hours looking over the place—room by room, inside and out—to check that everything works as it should.
Here’s what to know:
The final walkthrough gives you time to confirm that the seller made agreed upon repairs, and to check that no new issues have cropped up since the home inspection (which happens earlier in the house-buying journey).
It’s really rare (and often really awkward) for the seller and buyer to meet on final walkthrough day. But if the seller does hang around, they should have their realtor there, too.
A final walkthrough is never a waste of time—even if you feel great about the house. Buying a home is probably the biggest purchase you’ll make in your lifetime, and you want to make the most of this chance to give it one more look before you commit!
When Does a Final Walkthrough Happen?
The walkthrough happens as close to closing day as possible—usually a few days before. It can sometimes happen on closing day itself.
This part is important: Having the walkthrough near closing day means the house should be empty, giving you a good look at the whole place as a blank canvas. The seller should have moved out their stuff and hopefully not damaged floors and walls in the process.
Be sure to clarify this with your real estate agent to make sure the timing of the walkthrough is after the seller moves out and not before. Otherwise, you’ll be left wondering if the movers are going to accidentally knock a dent in the wall between the time you last saw the house and the closing that makes it legally yours. You don’t want any nasty surprises on closing day!
How Long Does a Final Walkthrough Take?
It could take one hour. It could take four hours. It all depends on the size of the property you’re walking through! Let’s pretend you’re closing on a three bedroom, two bathroom detached home in five days.
For your final walkthrough, you should set aside at least three hours from beginning to end.
What Should You Take to the Final Walkthrough?
Want to be prepared for anything? Bring these things:
Home purchase agreement: This legally binding contract lays out the terms agreed upon by the seller and the buyer. It covers everything from the appliances included in the purchase to repairs that should be carried out before the final walkthrough.
Home inspection report: This report contains the results of the home inspection. You can use it to review the issues the inspector flagged, then check that the seller made the necessary repairs.
Pen, paper and sticky notes: These are handy to make notes and mark any areas in the house that need further attention—like drywall or mold.
Camera: You’ll want to take photos of anything that concerns you in and around the house.
Something to test outlets: A night-light or phone charger is useful when testing electrical outlets—especially if the seller agreed to fix specific ones around the house.
What to Look For During a Final Walkthrough
Your final walkthrough day has arrived! What do you need to look out for? And let’s not forget the seller. What should they do in the days up until the final walkthrough?
For the Buyer
Outside the Home
The first thing you should do during your walkthrough is go through the agreed upon repairs. Did the seller need to replace a faulty smoke alarm? Was the HVAC overdue for a tune-up? The seller should make all the agreed upon repairs by final walkthrough (and have receipts for everything to give to you.)
Next, is anything missing from the house that you expected to remain? For example, is the flower bed missing a row of shrubs that were there before? You could withhold money from the seller for the shrubs you assumed would stay put.
Here are a few other items to check for:
Do the roof and gutters look okay from ground level?
Is there any debris around the home that the seller should’ve cleared? (You don’t want to be responsible for disposing of tins of paint or bags of cement.)
Are there any signs of pests—like rodent droppings or rotting wood from termites?
Check that the garage door openers are available and work correctly.
Make sure the doorbell works and that the mailbox is in good shape.
Keep in mind, this is not necessarily the time to bring up new issues you didn’t cover in the contract or after the home inspection. It’s more of a final check to make sure there aren’t any glaring issues or unexpected red flags—like a back door that may have been broken since you last viewed the home.
Inside the Home
You should first check that the utilities (water, electricity and gas) are all on. Run major appliances like the washing machine and dishwasher to ensure that they work and don’t cause any leaks. You should also do a brief test of the dryer.
Here are other items to check:
Run the heating and cooling using the HVAC system regardless of the temperature outside!
Is the refrigerator switched on and working as it should be in all compartments?
Run hot and cold water through all the faucets in the home, and check that sinks drain properly and don’t leak.
Briefly test all the showers and bathtubs.
Look for any mold that wasn’t there before. Check in the corners of rooms and in places where there used to be furniture.
Flush all the toilets a few times to ensure they work and fill correctly. Check for leaks.
Run the garbage disposal.
Test all the stove burners.
If there’s an extractor fan above the stove or any bathroom extractor fans, check them.
Test any outlets the inspector flagged for repair and make sure they work.
Test all the light switches and ceiling fans in every room.
Open and shut all the doors and windows and make sure they lock correctly. Are there any sticky doors or missing window screens?
Look at all the walls, ceilings, floors, crown molding and baseboards. Are there caulking and painting repairs the seller agreed to make but hasn’t done? Are there signs of new damages after they moved out?
Are all the fixtures present and in place? Fixtures are items like doorknobs, blinds and ceiling fans. They’re usually fixed into the home and shouldn’t be removed (unless agreed upon). And they’re different from personal property like table lamps or drapes that can be easily moved from room to room. If it looks like the Grinch has been through the house and unscrewed every fixture and light bulb, it can cost you a lot of unexpected cash to replace them.
Finally, is the house broom clean? In other words, does it look like it’s been swept and roughly cleaned? You should expect a basic level of cleanliness from the seller, even if you choose to do further work on the house or give some areas a deeper scrub yourself.
Pay extra attention if it’s a new construction. With new homes, plumbing and HVAC units haven’t had a lot of time to “settle in.” Kitchen cupboards might be misaligned or the laundry room could be missing a shelf. Surprises can (and often do) crop up during a final walkthrough, even with a brand-new home.
For the Seller
Now, the seller also has some key responsibilities by the time the final walkthrough happens. The seller should:
Empty and clean the entire house. It doesn’t need to gleam. It’s okay just to sweep with a broom. Give the bathrooms a quick clean, too.
Make sure you’ve made all the repairs you agreed to in the contract. You should have receipts and records of the repairs for the buyer in case they need to follow up on anything.
Make sure any appliances you’ve agreed to include in the purchase are functioning, clean and empty. Don’t surprise the buyer with leftovers from last night’s takeout in the fridge!
Fill in and paint over holes in walls after you’ve removed items like TV mounts and photos.
Finally, review the purchase agreement so you’re reminded of what you agreed to leave behind. After all, you’re busy moving out and have a lot going on—just like the buyer!
Problems During the Final Walkthrough
These days, the contract between a buyer and a seller will usually give the seller up to a few days before closing to make repairs. Any problems after that deadline should be resolved before closing day. But life happens!
Let’s say you discover the seller didn’t fix the electrics in the basement even though it was one of their agreed upon repairs. What happens next? Here are some options:
You could ask for money due to the seller to be held in escrow (a neutral third party) until the problem is fixed. This is a good option for expensive repairs. If the repairs would only cost a small amount (like $100 or so), then you could agree to a concession. This means the seller pays the buyer to fix the issue and closing day can go ahead as planned.
You could ask for closing to be delayed until the seller arranges to fix the problem. Some title companies and attorneys might also push for a delay until the seller makes the repair.
If the closing timeline can’t be altered, both parties could sign a summary of the walkthrough and note any faults the seller agrees to fix after closing day.
Closing day is so important in the house-buying process. Nobody wants to delay it! So it’s usually in everyone’s best interest to resolve any issues ahead of time.
A final walkthrough is just like it sounds—it’s a walk through the house you’re about to buy. It’s an opportunity for you and your real estate agent to spend a few hours looking over the place—room by room, inside and out—to check that everything works as it should.
Here’s what to know:
The final walkthrough gives you time to confirm that the seller made agreed upon repairs, and to check that no new issues have cropped up since the home inspection (which happens earlier in the house-buying journey).
It’s really rare (and often really awkward) for the seller and buyer to meet on final walkthrough day. But if the seller does hang around, they should have their realtor there, too.
A final walkthrough is never a waste of time—even if you feel great about the house. Buying a home is probably the biggest purchase you’ll make in your lifetime, and you want to make the most of this chance to give it one more look before you commit!
When Does a Final Walkthrough Happen?
The walkthrough happens as close to closing day as possible—usually a few days before. It can sometimes happen on closing day itself.
This part is important: Having the walkthrough near closing day means the house should be empty, giving you a good look at the whole place as a blank canvas. The seller should have moved out their stuff and hopefully not damaged floors and walls in the process.
Be sure to clarify this with your real estate agent to make sure the timing of the walkthrough is after the seller moves out and not before. Otherwise, you’ll be left wondering if the movers are going to accidentally knock a dent in the wall between the time you last saw the house and the closing that makes it legally yours. You don’t want any nasty surprises on closing day!
How Long Does a Final Walkthrough Take?
It could take one hour. It could take four hours. It all depends on the size of the property you’re walking through! Let’s pretend you’re closing on a three bedroom, two bathroom detached home in five days.
For your final walkthrough, you should set aside at least three hours from beginning to end.
What Should You Take to the Final Walkthrough?
Want to be prepared for anything? Bring these things:
Home purchase agreement: This legally binding contract lays out the terms agreed upon by the seller and the buyer. It covers everything from the appliances included in the purchase to repairs that should be carried out before the final walkthrough.
Home inspection report: This report contains the results of the home inspection. You can use it to review the issues the inspector flagged, then check that the seller made the necessary repairs.
Pen, paper and sticky notes: These are handy to make notes and mark any areas in the house that need further attention—like drywall or mold.
Camera: You’ll want to take photos of anything that concerns you in and around the house.
Something to test outlets: A night-light or phone charger is useful when testing electrical outlets—especially if the seller agreed to fix specific ones around the house.
What to Look For During a Final Walkthrough
Your final walkthrough day has arrived! What do you need to look out for? And let’s not forget the seller. What should they do in the days up until the final walkthrough?
For the Buyer
Outside the Home
The first thing you should do during your walkthrough is go through the agreed upon repairs. Did the seller need to replace a faulty smoke alarm? Was the HVAC overdue for a tune-up? The seller should make all the agreed upon repairs by final walkthrough (and have receipts for everything to give to you.)
Next, is anything missing from the house that you expected to remain? For example, is the flower bed missing a row of shrubs that were there before? You could withhold money from the seller for the shrubs you assumed would stay put.
Here are a few other items to check for:
Do the roof and gutters look okay from ground level?
Is there any debris around the home that the seller should’ve cleared? (You don’t want to be responsible for disposing of tins of paint or bags of cement.)
Are there any signs of pests—like rodent droppings or rotting wood from termites?
Check that the garage door openers are available and work correctly.
Make sure the doorbell works and that the mailbox is in good shape.
Keep in mind, this is not necessarily the time to bring up new issues you didn’t cover in the contract or after the home inspection. It’s more of a final check to make sure there aren’t any glaring issues or unexpected red flags—like a back door that may have been broken since you last viewed the home.
Inside the Home
You should first check that the utilities (water, electricity and gas) are all on. Run major appliances like the washing machine and dishwasher to ensure that they work and don’t cause any leaks. You should also do a brief test of the dryer.
Here are other items to check:
Run the heating and cooling using the HVAC system regardless of the temperature outside!
Is the refrigerator switched on and working as it should be in all compartments?
Run hot and cold water through all the faucets in the home, and check that sinks drain properly and don’t leak.
Briefly test all the showers and bathtubs.
Look for any mold that wasn’t there before. Check in the corners of rooms and in places where there used to be furniture.
Flush all the toilets a few times to ensure they work and fill correctly. Check for leaks.
Run the garbage disposal.
Test all the stove burners.
If there’s an extractor fan above the stove or any bathroom extractor fans, check them.
Test any outlets the inspector flagged for repair and make sure they work.
Test all the light switches and ceiling fans in every room.
Open and shut all the doors and windows and make sure they lock correctly. Are there any sticky doors or missing window screens?
Look at all the walls, ceilings, floors, crown molding and baseboards. Are there caulking and painting repairs the seller agreed to make but hasn’t done? Are there signs of new damages after they moved out?
Are all the fixtures present and in place? Fixtures are items like doorknobs, blinds and ceiling fans. They’re usually fixed into the home and shouldn’t be removed (unless agreed upon). And they’re different from personal property like table lamps or drapes that can be easily moved from room to room. If it looks like the Grinch has been through the house and unscrewed every fixture and light bulb, it can cost you a lot of unexpected cash to replace them.
Finally, is the house broom clean? In other words, does it look like it’s been swept and roughly cleaned? You should expect a basic level of cleanliness from the seller, even if you choose to do further work on the house or give some areas a deeper scrub yourself.
Pay extra attention if it’s a new construction. With new homes, plumbing and HVAC units haven’t had a lot of time to “settle in.” Kitchen cupboards might be misaligned or the laundry room could be missing a shelf. Surprises can (and often do) crop up during a final walkthrough, even with a brand-new home.
For the Seller
Now, the seller also has some key responsibilities by the time the final walkthrough happens. The seller should:
Empty and clean the entire house. It doesn’t need to gleam. It’s okay just to sweep with a broom. Give the bathrooms a quick clean, too.
Make sure you’ve made all the repairs you agreed to in the contract. You should have receipts and records of the repairs for the buyer in case they need to follow up on anything.
Make sure any appliances you’ve agreed to include in the purchase are functioning, clean and empty. Don’t surprise the buyer with leftovers from last night’s takeout in the fridge!
Fill in and paint over holes in walls after you’ve removed items like TV mounts and photos.
Finally, review the purchase agreement so you’re reminded of what you agreed to leave behind. After all, you’re busy moving out and have a lot going on—just like the buyer!
Problems During the Final Walkthrough
These days, the contract between a buyer and a seller will usually give the seller up to a few days before closing to make repairs. Any problems after that deadline should be resolved before closing day. But life happens!
Let’s say you discover the seller didn’t fix the electrics in the basement even though it was one of their agreed upon repairs. What happens next? Here are some options:
You could ask for money due to the seller to be held in escrow (a neutral third party) until the problem is fixed. This is a good option for expensive repairs. If the repairs would only cost a small amount (like $100 or so), then you could agree to a concession. This means the seller pays the buyer to fix the issue and closing day can go ahead as planned.
You could ask for closing to be delayed until the seller arranges to fix the problem. Some title companies and attorneys might also push for a delay until the seller makes the repair.
If the closing timeline can’t be altered, both parties could sign a summary of the walkthrough and note any faults the seller agrees to fix after closing day.
Closing day is so important in the house-buying process. Nobody wants to delay it! So it’s usually in everyone’s best interest to resolve any issues ahead of time.
Although general warranty deeds are more common in residential real estate transactions, there is one area where the special warranty deed becomes the norm. This one arena is for foreclosed properties, real-estate-owned (REO), or short-sold properties.
Most Federal National Mortgage Association (FNMA), Housing and Urban Development (HUD), and bank-owned residences sell using this sort of deed. Perhaps one primary reason for the use of special warranty deeds is because the selling authority has no wish to be liable for any situation concerning the property before the seizure.
A special warranty deed is a deed to real estate where the seller of the property—known as the grantor—warrants only against anything that occurred during their physical ownership. In other words, the grantor doesn’t guarantee against any defects in clear title that existed before they took possession of the property.
Special warranty deeds are most commonly used with commercial property transactions. Single-family and other residential property transactions will usually use a general warranty deed. Many mortgage lenders insist upon the use of the general warranty deed.
Special warranty deeds go by many names in different states including covenant deed, grant deed, and limited warranty deed.
A special warranty deed is a deed in which the seller of a piece of property only warrants against problems or encumbrances in the property title that occurred during his ownership.
A special warranty deed guarantees two things: The grantor owns, and can sell, the property; and the property incurred no encumbrances during his ownership.
A special warranty deed is more limited than the more common general warranty deed, which covers the entire history of the property.
Understanding Warranty Deeds
A warranty deed provides the transfer of ownership or title to commercial or residential real estate property and comes with certain guarantees made by the seller. These guarantees include that the property title is being transferred free-and-clear of ownership claims, outstanding liens or mortgages, or other encumbrances by individuals or entities other than the seller.
A special warranty deed—also known as a limited warranty deed—is a variation of the general warranty deed. The general warranty deed is the most common and preferred type of instrument used to transfer real estate titles in the United States.
Both the general and special warranty deeds identify:
The name of the seller—the grantor The name of the buyer—the grantee The physical location of the property The property is free of debt or encumbrances other than those noted in the deed The grantor warrants that they are the rightful owner of the property and have a legal right to transfer the title. The grantor warrants that the property is free-and-clear of all liens and that there are no outstanding claims on the property from any creditor using it as collateral. There is a guarantee that the title would withstand any third-party claims to ownership of the property. The grantor will do whatever is necessary to make good the grantee’s title to the property.
Both deeds provide the same general protections for the buyer. However, the primary difference between a special warranty and a general warranty deed is how they deal with the timeframe of protection given to title ownership.
Special Warranty Deed
While the use of the word “special” may communicate to a buyer the idea that the deed is of higher quality, the special warranty deed is less comprehensive and offers less protection due to the limited timeframe it covers. In residential property, special warranty deeds are frequently used in foreclosures and the forced sale of the property to satisfy a debt.
A general warranty deed covers the property’s entire history. It guarantees the property is free-and-clear from defects or encumbrances, no matter when they happened or under whose ownership. The general warranty deed assures the buyer they are obtaining full rights of ownership without valid potential legal issues with the title.
With a special warranty deed, the guarantee covers only the period when the seller held title to the property. Special warranty deeds do not protect against any mistakes in a free-and-clear title that may exist before the seller’s ownership. Thus, the grantor of a special warranty deed is only liable for debts, problems, or other encumbrances to the title that they caused or that happened during their ownership of the property. The grantee assumes responsibility for any problems that arise from the previous owners.
As an example, imagine a home has had two previous owners before you. The first owner was a hoarder, and soon the home and yard fell into disrepair. The city’s code enforcement department issued fines against the owner which attached to the property. The owner fell behind on their mortgage and the bank foreclosed, selling the home to the second owner.
To the pleasure of the neighborhood, the new owner fixed the house and cleaned the yard. After 10 years they put the home on the market, and you buy it using a special warranty deed. A few years later you decide to sell the home. However, because the code enforcement liens remain against the property, they could encumber your sell. At the very least, you will need to satisfy the city’s lien to free the title.
Title Searches and Title Insurance
Most times a title search will uncover any liens or claims to the title of a property. A title search is a review of available public records to determine the ownership of property. Attorneys, title companies, and individuals can complete title searches to verify ownership of property. While these searches are extensive, there is always the possibility that something will be missed.
For this reason, most buyers—regardless of the type of warranty deed they use—also purchase title insurance when buying a property. Title insurance is an indemnity insurance policy that protects a buyer from financial claims against the title of a property that they own.
Pros
Special warranties allow the transfer of property title between seller and buyer.
The purchase of title insurance can mitigate the risk of prior claims to the special warranty deed.
Cons
Special warranty deeds provide narrow protection for the grantees or buyers.
Special warranty deeds cover only the period of ownership of the grantor or seller.
Although general warranty deeds are more common in residential real estate transactions, there is one area where the special warranty deed becomes the norm. This one arena is for foreclosed properties, real-estate-owned (REO), or short-sold properties.
Most Federal National Mortgage Association (FNMA), Housing and Urban Development (HUD), and bank-owned residences sell using this sort of deed. Perhaps one primary reason for the use of special warranty deeds is because the selling authority has no wish to be liable for any situation concerning the property before the seizure.
A special warranty deed is a deed to real estate where the seller of the property—known as the grantor—warrants only against anything that occurred during their physical ownership. In other words, the grantor doesn’t guarantee against any defects in clear title that existed before they took possession of the property.
Special warranty deeds are most commonly used with commercial property transactions. Single-family and other residential property transactions will usually use a general warranty deed. Many mortgage lenders insist upon the use of the general warranty deed.
Special warranty deeds go by many names in different states including covenant deed, grant deed, and limited warranty deed.
KEY TAKEAWAYS
A special warranty deed is a deed in which the seller of a piece of property only warrants against problems or encumbrances in the property title that occurred during his ownership.
A special warranty deed guarantees two things: The grantor owns, and can sell, the property; and the property incurred no encumbrances during his ownership.
A special warranty deed is more limited than the more common general warranty deed, which covers the entire history of the property.
Understanding Warranty Deeds
A warranty deed provides the transfer of ownership or title to commercial or residential real estate property and comes with certain guarantees made by the seller. These guarantees include that the property title is being transferred free-and-clear of ownership claims, outstanding liens or mortgages, or other encumbrances by individuals or entities other than the seller.
A special warranty deed—also known as a limited warranty deed—is a variation of the general warranty deed. The general warranty deed is the most common and preferred type of instrument used to transfer real estate titles in the United States.
Both the general and special warranty deeds identify:
The name of the seller—the grantor
The name of the buyer—the grantee
The physical location of the property
The property is free of debt or encumbrances other than those noted in the deed
The grantor warrants that they are the rightful owner of the property and have a legal right to transfer the title.
The grantor warrants that the property is free-and-clear of all liens and that there are no outstanding claims on the property from any creditor using it as collateral.
There is a guarantee that the title would withstand any third-party claims to ownership of the property.
The grantor will do whatever is necessary to make good the grantee’s title to the property.
Both deeds provide the same general protections for the buyer. However, the primary difference between a special warranty and a general warranty deed is how they deal with the timeframe of protection given to title ownership.
Special Warranty Deed
While the use of the word “special” may communicate to a buyer the idea that the deed is of higher quality, the special warranty deed is less comprehensive and offers less protection due to the limited timeframe it covers. In residential property, special warranty deeds are frequently used in foreclosures and the forced sale of the property to satisfy a debt.
A general warranty deed covers the property’s entire history. It guarantees the property is free-and-clear from defects or encumbrances, no matter when they happened or under whose ownership. The general warranty deed assures the buyer they are obtaining full rights of ownership without valid potential legal issues with the title.
With a special warranty deed, the guarantee covers only the period when the seller held title to the property. Special warranty deeds do not protect against any mistakes in a free-and-clear title that may exist before the seller’s ownership. Thus, the grantor of a special warranty deed is only liable for debts, problems, or other encumbrances to the title that they caused or that happened during their ownership of the property. The grantee assumes responsibility for any problems that arise from the previous owners.
As an example, imagine a home has had two previous owners before you. The first owner was a hoarder, and soon the home and yard fell into disrepair. The city’s code enforcement department issued fines against the owner which attached to the property. The owner fell behind on their mortgage and the bank foreclosed, selling the home to the second owner.
To the pleasure of the neighborhood, the new owner fixed the house and cleaned the yard. After 10 years they put the home on the market, and you buy it using a special warranty deed. A few years later you decide to sell the home. However, because the code enforcement liens remain against the property, they could encumber your sell. At the very least, you will need to satisfy the city’s lien to free the title.
Title Searches and Title Insurance
Most times a title search will uncover any liens or claims to the title of a property. A title search is a review of available public records to determine the ownership of property. Attorneys, title companies, and individuals can complete title searches to verify ownership of property. While these searches are extensive, there is always the possibility that something will be missed.
For this reason, most buyers—regardless of the type of warranty deed they use—also purchase title insurance when buying a property. Title insurance is an indemnity insurance policy that protects a buyer from financial claims against the title of a property that they own.
Pros
Special warranties allow the transfer of property title between seller and buyer.
The purchase of title insurance can mitigate the risk of prior claims to the special warranty deed.
Cons
Special warranty deeds provide narrow protection for the grantees or buyers.
Special warranty deeds cover only the period of ownership of the grantor or seller.
When creating a revocable living trust, you are acting as a trustee. This means that you can move property within the trust at will, even dissolving it if you wish to do so. When doing business, banks, lenders, and other types of financial institutions may want to confirm that some assets are still within the trust and that you can still access them.
A certification of trust is a document that is used to certify that a trust was established. It provides important information, like the name of the trust, the trustees, and the date it was formed. It is also referred to as an abstract or memorandum of trust. It provides substantiation that property is being held in the trust.
This certificate will do the same job with an irrevocable trust. A certification of trust is a type of self-certification. This means it is made by the trustee as a declaration on penalty of perjury.
What the Certificate of Trust Includes
While the certificate requirements will be different in each state, it generally provides the following:
The identification of the trustee who is in charge of moving, selling, or otherwise giving away property in a trust
It will cite the creation of the trust and any changes that are made from the original trust.
If its a revocable trust, it will explain who is allowed to revoke.
Advantages of a Certificate of Trust
One advantage of a certificate of trust is that it does not include information that you want to keep private. It will not list your beneficiaries, what they are going to inherit, or when they will receive it. This permits your trustee or you to conduct business while not disclosing information that you want to keep private.
What is a Certification of Living Trust?
Another name for the certification of living trust is the certification of inter vivos trust. A living trust is sometimes referred to as a family trust or inter vivos trust. They make sure that all assets acquired are in the name of the trust.
Banks and brokerage firms require that when you are opening a new account you need to provide a copy of the trust. It is also requested from escrows when you purchase real estate. Some don’t want to provide a copy of the trust since it has private information inside, which includes the name of their children. The certificate of inter vivos trust will provide the necessary information to facilitate a transfer from the trust to your banking institution, transfer agent, or other third party.
It will also confirm that the trustee has the authority to act for the trust. It will prevent anyone from getting into the trust that should not, including individuals and other institutions that have no business doing so.
What is a Memorandum of Trust?
A memorandum of trust is also a certification, abstract, or certificate of trust. It is a shorter version of the trust certificate. It provides institutions with information they need, but allows you to keep some components confidential. You are not required to provide the names of beneficiaries. It is almost always accepted in place of a regular trust.
States with Their Own Certification Rules
A lot of states will have their own laws regarding trusts. They state that if a certification of trust has certain information, the institution has to accept it in place of the whole trust document. Many states have certain statutes that lay out the contents of the certification of trust. As long as your certificates meet all state requirements, different institutions have to accept it. Otherwise, it will be liable for any losses that occur.
Choosing to live in a condominium complex or gated townhouse community certainly has many perks as to the maintenance of the property. As part of such a community, homeowners enjoy care-free living while the homeowners association or HOA is tasked with ensuring that all of the common areas of the property are well-maintained and cared for.
This includes having all the landscaping cared for on a weekly basis, the pool (if there is one) cleaned and maintained, and all other physical aspects of the property kept in good working condition. Basically, anything that isn’t connected with the individual unit in which you live is the responsibility of the HOA to repair and replace in a timely manner.
That’s why you pay your HOA fees on a regular basis. A portion of these resources are allocated to the Operating budget, which covers the routine management, upkeep and maintenance of the shared areas of the property. From the pool, to the utilities, to the yard work, your association fees are being used to make sure these parts of the community are tended to on a regular basis and everything is in good working order.
If the Board of Directors is acting responsibly, a portion of these fees are also allocated towards the Reserve budget. This covers repair and replacement costs that will come about over time. Let’s say the driveway needs to be sealed or the exterior of the buildings need to be repainted, your HOA fees will be used for those things, in addition to the various routine costs of managing the property.
But if your HOA doesn’t have enough cash in reserve to cover the expenses of a major repair or replacement, you could be subject to a Special Assessment in which all of the homeowners of the units contained on the property will be expected to come up with their proportionate share of the project cost. Depending on the work that needs to be performed, you could be on the hook for thousands of dollars when you least expect.
Does this mean your Board of Directors is being derelict in their duties? If the special assessment is for a predictable (Reserve) project that failed in plain sight right on schedule, it certainly appears that way!
In some states, an HOA is not bound by law to conduct a Reserve Study. In others, the Board must disclose relevant reserve information to all pertinent parties involved in any real estate transactions within the HOA. Regardless, a Board is responsible to meet the financial needs of the association & comply with all applicable laws.
Reserve Fund Adequacy
Let’s consider those HOAs that do conduct regular Reserve Studies and work towards maintaining “adequate reserves”. A long time HOA trade organization called the Community Associations Institute (CAI) worked closely with a number of Reserve Study professionals to develop the following definition of reserve adequacy: “Adequate Replacement Reserves” is defined as a Replacement Reserve Fund and stable and equitable multi-yr Funding Plan that together provide for the timely execution of the association’s major repair and replacement expenses as defined by National Reserve Study Standards, without reliance on additional supplemental funding.
You’ll notice that the definition contains two parts: having enough cash -and- not relying on outside funding sources like loans or Special Assessments.
A current Reserve Study is the only way to determine reserves adequacy. That’s because a Reserve Study contains a funding plan designed as much as possible to avoid the need for outside funding sources. Absent a Reserve Study, it’s just a guess!
The Reserve Study examines the basics of the HOA, things like age and condition of the building, as well as all of the features and common area amenities that the HOA is responsible to maintain.
The study is a forecast of sorts, estimating when certain components of the property would be due for a repair or a replacement and the expenses associated with having this work performed at that time. While the Reserve Study is certainly a projection, it is based on projects that are both inevitable and predictable! The study provides Boards with numbers to work with in attempting to fund reserves at the same pace of the property’s deterioration and ahead of repair or replacement costs.
It’s possible that your HOA is currently underfunded and the Board will be forced to rely on a Special Assessment at the time of an expensive repair or replacement of something around the property.
Resources on Reserve
But let’s assume for the sake of argument that your homeowners association is taking all of the necessary steps to ensure that the property’s reserves are well funded and prepared for both inevitable and predictable future repair and replacement expenses. How much should the HOA have on hand to address these costs?
Although every property is unique, most reserve experts will suggest that the reserves be funded at 70% or higher of the property’s calculated deterioration. A reserve fund at that level will, in most cases, mean a low risk of Special Assessment, and satisfy the definition of reserve adequacy as long as responsibly sized contributions continue to be made. However, HOAs with weaker reserve funds (i.e., less than 30% funded) can also satisfy adequacy requirements. Despite being underfunded, they can achieve reserve adequacy by adopting an aggressive funding plan that avoids reliance on outside funding sources.
Home Values
Whether or not the homeowners association takes action to ensure the money is available to complete repairs and replacements in a timely manner is a decision the Board will need to make. It is important for the owners of the various units of the property to have confidence that the Board is fulfilling their responsibility in this regard. Studies have shown that homes in condominium associations with strongly funded reserves sell for 12% more than comparable homes in underfunded associations.
Inflation from January 2007 through December 2016 was extremely low, averaging only 1.77% per year in the U.S. and 2009 was actually negative (i.e. falling prices = deflation). Although 2017 has seen a bit more inflation it is still low by historical standards. In times of low inflation, inflation is a vague term that economists throw around when they’re trying to make one point or another. However, when inflation begins rising and hitting your pocket, the reality begins to set in. And it can have a quite noticeable effect on, not only the goods you buy at your favorite big box store, but even on real estate. Let’s take a quick look at some ways rising (or sinking) prices get their tentacles into that new house being built or the one for sale down the street.
Material Costs
Stop and think for a moment about the different materials go into building a house. This is an example where the final product is a sometimes less-than-obvious sum of its parts. A partial list would include wood, copper, concrete, glass, steel, etc. Do you notice a pattern? These are all basic commodities to one degree or another, and there are many more that go into a house before it is finished. When the prices of these basic materials go up, it costs your friendly neighborhood construction company more money to build a house. They can choose to either make less profit (not likely) or raise prices. Guess what they usually choose? So price inflation drives up basic materials costs making new houses more expensive.
Money Gets Expensive
Another effect of rising inflation is that interest rates rise due primarily due the the FED raising the Federal Funds Rate (i.e. the interest rate at which banks lend reserve balances to other banks overnight). The FED does this in an effort to quench the fires of inflation, Thus it becomes more expensive to borrow money. So fewer people are able to afford loans, which causes demand to drop and fewer houses to be built. In times when less money is borrowed, economic growth in general becomes suppressed.
A Shift Into Rentals
The higher cost of borrowing also tends to shift people into rentals rather than the home buyer market. Obviously, this is bad for single family residential sales but can be a boon for landlords, perhaps even motivating them to build more multi-unit structures. Plus unlike mortgages, rents can be raised to compensate the landlord for inflation thus affecting those who can least afford it the most.
Houses Provide Protection Against Inflation
As mentioned above, once you lock in your mortgage, as inflation cuts the value of each dollar, you are able to pay off your mortgage with ever less valuable dollars. In addition, since a house is a commodity, it tends to appreciate pretty much in sync with rising inflation. So although owning a home won’t make you rich it does provide some protection against rising prices. Unlike your personal home, investing in income producing Real Estate however, can make you rich by getting your tenants to pay off your mortgage. The one caveat where a mortgage can bit you during rising inflation is if you have an “Adjustable” mortgage where your mortgage payment can be increased due to rising interest rates.
What Do Foreclosures Have to Do With It?
Follow this chain of logic and you’ll understand why an increase in foreclosures is another result of inflation. We’ve already discussed how growing inflation makes everything you buy more expensive. Let’s say a family has a mortgage they can barely afford with prices the way they are. Throw higher prices for food, gas, and all of life’s other basics into the mix and suddenly they’re having to choose between eating supper or paying the house note. This is how waves of foreclosures start like we had back in 2007. It is also a time when lenders become more predatory in their willingness to approve loans. It is something that borrowers have to be very careful about. And another reason we caution you against Variable (or Adjustable) mortgages.
Deflation
The focus here has been rising prices, which we call Price inflation which is commonly the result of “Monetary Inflation” (i.e. an increase in the money supply). Though inflation is much more common than its opposite, known as deflation – or sinking prices – there have been a few short instances of the latter in recent memory. At first, it seems that dropping prices would be a good thing. The problem is that it is usually associated with sinking demand brought on by high unemployment or by a contracting money supply due to a market crash. In the long run, it’s not a good thing for the housing market since it can result in falling housing prices as well. And once people see that they owe the bank more than their house is worth many end up defaulting on their mortgage which in turn increases the supply of houses on the market thus driving house prices down even further.
Inflation from January 2007 through December 2016 was extremely low, averaging only 1.77% per year in the U.S. and 2009 was actually negative (i.e. falling prices = deflation). Although 2017 has seen a bit more inflation it is still low by historical standards. In times of low inflation, inflation is a vague term that economists throw around when they’re trying to make one point or another. However, when inflation begins rising and hitting your pocket, the reality begins to set in. And it can have a quite noticeable effect on, not only the goods you buy at your favorite big box store, but even on real estate. Let’s take a quick look at some ways rising (or sinking) prices get their tentacles into that new house being built or the one for sale down the street.
Material Costs
Stop and think for a moment about the different materials go into building a house. This is an example where the final product is a sometimes less-than-obvious sum of its parts. A partial list would include wood, copper, concrete, glass, steel, etc. Do you notice a pattern? These are all basic commodities to one degree or another, and there are many more that go into a house before it is finished. When the prices of these basic materials go up, it costs your friendly neighborhood construction company more money to build a house. They can choose to either make less profit (not likely) or raise prices. Guess what they usually choose? So price inflation drives up basic materials costs making new houses more expensive.
Money Gets Expensive
Another effect of rising inflation is that interest rates rise due primarily due the the FED raising the Federal Funds Rate (i.e. the interest rate at which banks lend reserve balances to other banks overnight). The FED does this in an effort to quench the fires of inflation, Thus it becomes more expensive to borrow money. So fewer people are able to afford loans, which causes demand to drop and fewer houses to be built. In times when less money is borrowed, economic growth in general becomes suppressed.
A Shift Into Rentals
The higher cost of borrowing also tends to shift people into rentals rather than the home buyer market. Obviously, this is bad for single family residential sales but can be a boon for landlords, perhaps even motivating them to build more multi-unit structures. Plus unlike mortgages, rents can be raised to compensate the landlord for inflation thus affecting those who can least afford it the most.
Houses Provide Protection Against Inflation
As mentioned above, once you lock in your mortgage, as inflation cuts the value of each dollar, you are able to pay off your mortgage with ever less valuable dollars. In addition, since a house is a commodity, it tends to appreciate pretty much in sync with rising inflation. So although owning a home won’t make you rich it does provide some protection against rising prices. Unlike your personal home, investing in income producing Real Estate however, can make you rich by getting your tenants to pay off your mortgage. The one caveat where a mortgage can bite you during rising inflation is if you have an “Adjustable” mortgage where your mortgage payment can be increased due to rising interest rates.
What Do Foreclosures Have to Do With It?
Follow this chain of logic and you’ll understand why an increase in foreclosures is another result of inflation. We’ve already discussed how growing inflation makes everything you buy more expensive. Let’s say a family has a mortgage they can barely afford with prices the way they are. Throw higher prices for food, gas, and all of life’s other basics into the mix and suddenly they’re having to choose between eating supper or paying the house note. This is how waves of foreclosures start like we had back in 2007. It is also a time when lenders become more predatory in their willingness to approve loans. It is something that borrowers have to be very careful about. And another reason we caution you against Variable (or Adjustable) mortgages.
Deflation
The focus here has been rising prices, which we call Price inflation which is commonly the result of “Monetary Inflation” (i.e. an increase in the money supply). Though inflation is much more common than its opposite, known as deflation – or sinking prices – there have been a few short instances of the latter in recent memory. At first, it seems that dropping prices would be a good thing. The problem is that it is usually associated with sinking demand brought on by high unemployment or by a contracting money supply due to a market crash. In the long run, it’s not a good thing for the housing market since it can result in falling housing prices as well. And once people see that they owe the bank more than their house is worth many end up defaulting on their mortgage which in turn increases the supply of houses on the market thus driving house prices down even further.
Buying or selling a home can be a complicated process.
Sometimes, homebuyers have trouble qualifying for a mortgage.
Other times, sellers yearn to cut through the red tape and net potentially more profit.
The solution for both may be owner financing.
Although not very common today, owner financing is when the seller offers direct financing to the buyer instead of or in addition to a mortgage.
What is owner financing?
Owner financing occurs when the owner of a property for sale provides partial or complete financing to the buyer directly after the buyer makes a down payment.
The agreement here is very similar to a mortgage loan, except the owner of the home owns the debt instead of a bank or other lender.
Owner financing is usually not reported on the buyer’s credit report. There is typically a substantial down payment required (usually 10 percent to 15 percent) that makes up for the fact that the financing is usually not dependent on the buyer’s income or credit history — although sellers are advised to perform a credit check regardless.
Chris McDermott, real estate investor and broker of Jax Nurses Buy Houses in Jacksonville, Florida, has offered owner financing himself on investment properties he’s sold. McDermott says it can be a common practice in some areas, “specifically for rural land or homes that a seller owns free and clear.”
Owner financing can be beneficial to buyers who aren’t eligible for the desired loan from a mortgage lender, or if the lender only qualifies the buyer for a portion of the purchase price. In the latter scenario, the buyer might be able to take out a first mortgage from the lender for that portion, and then obtain owner financing for the shortfall.
How does owner financing work?
In most owner financing arrangements, the owner (seller) records a mortgage against the property, which is sold via deed transfer to the buyer.
Typically, the owner lets the buyer take over and move into the house without a mortgage, but after the buyer makes a down payment the buyer signs a promissory note and makes monthly payments to the seller, but the owner keeps the title to the home as leverage in the deal.”
The buyer makes mortgage payments to the seller over an agreed-upon amortization schedule at a specified fixed interest rate. Typically, the seller will not hold that mortgage for longer than five or 10 years. After that time, the mortgage commonly comes due in the form of a balloon payment owed by the buyer.
To make that balloon payment — generally, a large lump sum — the buyer usually (by that time) qualifies for and obtains a mortgage refinance, likely for a lower interest rate.
Alternatively, the buyer can get a first mortgage from a bank or other lender while the seller takes a second interest in lieu of some of the down payment.
Say you want to buy a $200,000.00 house but the bank will only loan you $160,000.00 If the seller will take back a second mortgage for $40,000.00, the deal may be able to close.
Just because a seller is providing the funds doesn’t mean the buyer won’t pay closing costs which costs can include deed recording and title fees.
The good news is that the costs “are usually substantially less than you’d pay with bank financing.
These are some of the different types of owner financing you might encounter:
Second mortgage – If the homebuyer can’t qualify for a traditional mortgage for the full purchase price of the home, the seller can offer a second mortgage to the buyer to make up the difference. Typically, the second mortgage has a shorter term and higher interest rate than the first mortgage obtained from the lender.
Land contract – In a land contract agreement, the homebuyer makes payments to the seller on an agreed-upon basis. When the buyer finishes the payment schedule, they get the deed to the property. A land contract typically doesn’t involve a bank or mortgage lender, so it can be a much faster way to secure financing for a home.
Lease-purchase – With a lease-purchase agreement, the homebuyer agrees to rent the property from the owner for a period of time. At the end of that time, the buyer has the option to purchase the home, usually at a prearranged price. Typically, the buyer needs to make an upfront deposit before moving in and will lose the deposit if they choose not to buy the home.
Wraparound mortgage – Home sellers can use wraparound financing when they still have an outstanding mortgage on their home. In this situation, the owner agrees to sell the home to the buyer, who makes a down payment plus monthly loan payments to the owner. The seller uses those payments to pay down their existing mortgage. Often, the buyer pays a higher interest rate than the interest rate on the seller’s existing mortgage.
Example of owner financing
Say a seller advertises a home for sale with owner financing offered. The buyer and seller agree to a purchase price of $175,000. The seller requires a down payment of 15 percent — $26,250. The seller agrees to finance the outstanding $148,750 at an 8 percent fixed interest rate over a 30-year amortization, with a balloon payment due after five years.
In this example, the buyer agrees to make monthly payments of $1,091 to the seller for 59 months (excluding property taxes and homeowners insurance that the buyer will pay for separately.
At month 60, a balloon payment of $141,451.27 will be due. The seller will end up collecting $233,161.27 after 60 months, broken down as:
$26,250 for the down payment $58,161.27 in total interest payments Total principal balance of $148,750
Pros and cons of owner financing
For homebuyers
Pros Faster closing No closing costs Flexible down payment requirement Less strict credit requirements
Cons Higher interest rate Not all sellers are willing Many deals involve large balloon payments Many lenders won’t allow unless the seller pays the remaining balance
For home sellers
Pros
Potential for a good return if you find a good buyer Faster sale Title protected if the buyer defaults Receive monthly income
Cons
Agreements can be complex and limiting Many lenders won’t allow unless you own a home free and clear Potential for the buyer to default or damage home, meaning you’ll have to initiate foreclosure, make repairs, and/or find a new buyer Tax implications to consider
Owner financing offers advantages and disadvantages to both home buyers and sellers.
The buyer can get a loan they otherwise could not get approved for from a bank, which can be especially beneficial to borrowers who are self-employed or have bad credit.
However, the interest rate charged by a seller is usually much higher than a traditional mortgage lender would charge and the balloon payment that comes due after a few years will be significant.
The advantages to the seller are manifold. Owner financing allows the seller to sell the property as-is, without any repairs needed that a traditional lender could require.
Additionally, sellers can obtain tax benefits by deferring any realized capital gains over many years. Depending on the interest rate they charge, sellers can get a better rate of return on the money they lend than they would get on many other types of investments.”
The seller is taking a risk, though. If the buyer stops making loan payments, the seller might have to foreclose, and if the buyer didn’t properly maintain and improve the home, the seller could end up repossessing a property that’s in worse shape than when it was sold.
How to buy a home with owner financing or offer it
If you can’t get the financing you need from a bank or mortgage lender, a skilled real estate agent can help you find properties with owner financing.
Just be sure the promissory note you sign is legally compliant and clearly lays out the terms of the deal. It’s also a good idea to revisit a seller financing agreement after a few years, especially if interest rates have dropped or your credit score improves — in which case you can refinance with a traditional mortgage and pay off the seller earlier than expected.
If you want to offer owner financing as a seller, you can mention the arrangement in the listing description for your home.
Be sure to require a substantial down payment — 15 percent if possible. Find out the buyer’s position and exit strategy, and determine what their plan and timeline are. Ultimately, you want to know the buyer will be in the position to pay you off and refinance once your balloon payment is due.
It’s important to have a real estate attorney prepare and carefully review all the documents involved, as well, to protect each party’s interests.
Buying or selling a home can be a complicated process. Sometimes, homebuyers have trouble qualifying for a mortgage. Other times, sellers yearn to cut through the red tape and net potentially more profit.
The solution for both may be owner financing. Although not very common today, owner financing is when the seller offers direct financing to the buyer instead of or in addition to a mortgage.
What is owner financing?
Owner financing occurs when the owner of a property for sale provides partial or complete financing to the buyer directly, after the buyer makes a down payment.
The agreement here is very similar to a mortgage loan, except the owner of the home owns the debt instead of a bank or other lender.
Owner financing is usually not reported on the buyer’s credit report. There is typically a substantial down payment required (usually 10 percent to 15 percent) that makes up for the fact that the financing is usually not dependent on the buyer’s income or credit history — although sellers are advised to perform a credit check regardless.
Chris McDermott, real estate investor and broker of Jax Nurses Buy Houses in Jacksonville, Florida, has offered owner financing himself on investment properties he’s sold. McDermott says it can be a common practice in some areas, “specifically for rural land or homes that a seller owns free and clear.”
Owner financing can be beneficial to buyers who aren’t eligible for a desired loan from a mortgage lender, or if the lender only qualifies the buyer for a portion of the purchase price. In the latter scenario, the buyer might be able to take out a first mortgage from the lender for that portion, and then obtain owner financing for the shortfall.
How does owner financing work?
In most owner financing arrangements, the owner (seller) records a mortgage against the property, which is sold via deed transfer to the buyer.
Typically, the owner lets the buyer take over and move into the house without a mortgage, but after the buyer makes a down payment the buyer signs a promissory note and makes monthly payments to the seller, but the owner keeps the title to the home as leverage in the deal.”
The buyer makes mortgage payments to the seller over an agreed-upon amortization schedule at a specified fixed interest rate. Typically, the seller will not hold that mortgage for longer than five or 10 years. After that time, the mortgage commonly comes due in the form of a balloon payment owed by the buyer.
To make that balloon payment — generally a large lump sum — the buyer usually (by that time) qualifies for and obtains a mortgage refinance, likely for a lower interest rate.
Alternatively, the buyer can get a first mortgage from a bank or other lender while the seller takes a second interest in lieu of some of the down payment.
Say you want to buy a $200,000 house but the bank will only loan you $160,000. If the seller will take back a second mortgage for $40,000, the deal may be able to close.
Just because a seller is providing the funds doesn’t mean the buyer won’t pay closing costs which costs can include deed recording and title fees.
The good news is that the costs “are usually substantially less than you’d pay with bank financing.
These are some of the different types of owner financing you might encounter:
Second mortgage – If the homebuyer can’t qualify for a traditional mortgage for the full purchase price of the home, the seller can offer a second mortgage to the buyer to make up the difference. Typically, the second mortgage has a shorter term and higher interest rate than the first mortgage obtained from the lender.
Land contract – In a land contract agreement, the homebuyer makes payments to the seller on an agreed-upon basis. When the buyer finishes the payment schedule, they get the deed to the property. A land contract typically doesn’t involve a bank or mortgage lender, so it can be a much faster way to secure financing for a home.
Lease-purchase – With a lease-purchase agreement, the homebuyer agrees to rent the property from the owner for a period of time. At the end of that time, the buyer has the option to purchase the home, usually at a prearranged price. Typically, the buyer needs to make an upfront deposit before moving in and will lose the deposit if they choose not to buy the home.
Wraparound mortgage – Home sellers can use wraparound financing when they still have an outstanding mortgage on their home. In this situation, the owner agrees to sell the home to the buyer, who makes a down payment plus monthly loan payments to the owner. The seller uses those payments to pay down their existing mortgage. Often, the buyer pays a higher interest rate than the interest rate on the seller’s existing mortgage.
Example of owner financing
Say a seller advertises a home for sale with owner financing offered. The buyer and seller agree to a purchase price of $175,000. The seller requires a down payment of 15 percent — $26,250. The seller agrees to finance the outstanding $148,750 at an 8 percent fixed interest rate over a 30-year amortization, with a balloon payment due after five years.
In this example, the buyer agrees to make monthly payments of $1,091 to the seller for 59 months (excluding property taxes and homeowners insurance that the buyer will pay for separately.
At month 60, a balloon payment of $141,451.27 will be due. The seller will end up collecting $233,161.27 after 60 months, broken down as:
$26,250 for the down payment $58,161.27 in total interest payments Total principal balance of $148,750
Pros and cons of owner financing
For homebuyers
Pros Faster closing No closing costs Flexible down payment requirement Less strict credit requirements
Cons Higher interest rate Not all sellers are willing Many deals involve large balloon payments Many lenders won’t allow unless seller pays remaining balance
For home sellers
Pros
Potential for a good return if you find a good buyer Faster sale Title protected if the buyer defaults Receive monthly income
Cons
Agreements can be complex and limiting Many lenders won’t allow unless you own home free and clear Potential for buyer to default or damage home, meaning you’ll have to initiate foreclosure, make repairs and/or find a new buyer Tax implications to consider
Owner financing offers advantages and disadvantages to both homebuyers and sellers.
The buyer can get a loan they otherwise could not get approved for from a bank, which can be especially beneficial to borrowers who are self-employed or have bad credit.
However, the interest rate charged by a seller is usually much higher than a traditional mortgage lender would charge and the balloon payment that comes due after a few years will be significant.
The advantages to the seller are manifold. Owner financing allows the seller to sell the property as-is, without any repairs needed that a traditional lender could require.
Additionally, sellers can obtain tax benefits by deferring any realized capital gains over many years. Depending on the interest rate they charge, sellers can get a better rate of return on the money they lend than they would get on many other types of investments.”
The seller is taking a risk, though. If the buyer stops making loan payments, the seller might have to foreclose, and if the buyer didn’t properly maintain and improve the home, the seller could end up repossessing a property that’s in worse shape than when it was sold.
How to buy a home with owner financing or offer it
If you can’t get the financing you need from a bank or mortgage lender, a skilled real estate agent can help you find properties with owner financing.
Just be sure the promissory note you sign is legally compliant and clearly lays out the terms of the deal. It’s also a good idea to revisit a seller financing agreement after a few years, especially if interest rates have dropped or your credit score improves — in which case you can refinance with a traditional mortgage and pay off the seller earlier than expected.
If you want to offer owner financing as a seller, you can mention the arrangement in the listing description for your home.
Be sure to require a substantial down payment — 15 percent if possible. Find out the buyer’s position and exit strategy, and determine what their plan and timeline is. Ultimately, you want to know the buyer will be in the position to pay you off and refinance once your balloon payment is due.
It’s important to have a real estate attorney prepare and carefully review all the documents involved, as well, to protect each party’s interests.
A party to a lawsuit intended to affect real estate may record a notice on the land records containing the names of the parties, the name and object of the suit, the court where it will be heard, and a description of the property. This is called a notice of lis pendens, which signifies pending litigation. This notice binds any subsequent acquirer of an interest in the real estate to the result of the lawsuit just as if the acquirer were a party to the lawsuit.
The law has procedures a property owner may follow to get the lis pendens notice removed from the land records. If the underlying lawsuit has been filed, the property owner may file a motion with the court to have it discharged. If the underlying lawsuit has not been filed, the property owner may file an application for discharge, together with a proposed order and summons.
In addition, the law allows any interested party to file a motion to discharge a notice of lis pendens if it is not intended to affect property, if certain procedural requirements were not complied with, or the notice never became effective or has become ineffective.
APPLICATION OR MOTION FOR PROBABLE CAUSE HEARING FOR DISCHARGE OF LIS PENDENS NOTICE
The property owner may either make application for, or file a motion for, a hearing to determine whether the notice of lis pendens should be discharged. An application may be made if the litigation affecting the property is not yet before the court; a motion may be made if such litigation is already pending. A motion may be made at any time unless an application was previously ruled upon.
The application must be made to the court where the underlying litigation is planned and must be accompanied by a proposed court order and a summons. The application, order, and summons must be substantially the same as those, which appear as suggested forms in the law. The court must give reasonable notice of the hearing to the person who filed the lis pendens notice. In no event may the notice be given less than seven days before the hearing.
HEARING TO DISCHARGE LIS PENDENS NOTICE
The burden of proof at the hearing is on the person who filed the lis pendens notice to establish that (1) there is probable cause to sustain the validity of his claim, and (2) if the notice involves an allegation of an illegal, invalid, or defective transfer of a real estate interest, the transfer occurred fewer than 60 years before the court claim. After the hearing, the court may either deny the application or motion or order that the lis pendens notice be discharged.
APPLICATION TO STAY DECISION OF COURT PENDING APPEAL
Either party may appeal the court’s decision within seven days of the date it is handed down. The party taking such an appeal may within the seven-day period, file an application with the court which rendered the decision requesting a stay of the decision’s effect pending the appeal. The application must state the reasons for the request and a copy must be sent to the adverse party. A hearing on the application must be held promptly.
If the party taking the appeal gives a bond with surety in an amount the court deems sufficient to indemnity the adverse party for any damages, which might result from the stay, the court must stay the decision pending appeal.
MOTION TO DISCHARGE LIS PENDENS NOTICE BY ANY INTERESTED PARTY
An interested party (as opposed to just the property owner) may file a motion requesting the court to discharge a lis pendens notice in any case in which:
1. the lis pendens is not “intended to affect real property” as defined by law;
2. the recorded lis pendens notice does not contain the information required by law;
3. the property owner did not receive notice of the litigation the recording of the lis pendens notice as required by law; or
4. for any other reason the lis pendens notice never became effective or became in effective.
RECORDING OF DISCHARGE OF LIS PENDENS OR STAY
Any order of discharge or any order of a stay takes effect when a certified copy is recorded in the office of the town clerk in which the order of lis pendens was recorded. The court clerk is not permitted to provide any certified copies of the order until the time for taking an appeal elapses or, if applicable, until a decision is rendered relative to the granting of a stay.
EFFECT OF RECORDING ORDER OF DISCHARGE
When a certified copy of an order discharging a lis pendens notice has been recorded, the lis pendens no longer constitutes constructive notice of the litigation to any third party who acquires an interest in the property that is subject to the litigation.
DURATION OF NOTICE OF LIS PENDENS
No list pendens notice can be valid as constructive notice for more than 15 years unless it is re-recorded within 10 years after it was first recorded and the recording party serves a copy of the notice on the record owner within 30 days after it is re-recorded. If a lis pendens notice is re-recorded it is only valid for 10 years from the re-recording date.
A party to a lawsuit intended to affect real estate may record a notice on the land records containing the names of the parties, the name and object of the suit, the court where it will be heard, and a description of the property. This is called a notice of lis pendens, which signifies pending litigation. This notice binds any subsequent acquirer of an interest in the real estate to the result of the lawsuit just as if the acquirer were a party to the lawsuit.
The law has procedures a property owner may follow to get the lis pendens notice removed from the land records. If the underlying lawsuit has been filed, the property owner may file a motion with the court to have it discharged. If the underlying lawsuit has not been filed, the property owner may file an application for discharge, together with a proposed order and summons.
In addition, the law allows any interested party to file a motion to discharge a notice of lis pendens if it is not intended to affect property, if certain procedural requirements were not complied with, or the notice never became effective or has become ineffective.
APPLICATION OR MOTION FOR PROBABLE CAUSE HEARING FOR DISCHARGE OF LIS PENDENS NOTICE
The property owner may either make application for, or file a motion for, a hearing to determine whether the notice of lis pendens should be discharged. An application may be made if the litigation affecting the property is not yet before the court; a motion may be made if such litigation is already pending. A motion may be made at any time unless an application was previously ruled upon.
The application must be made to the court where the underlying litigation is planned and must be accompanied by a proposed court order and a summons. The application, order, and summons must be substantially the same as those, which appear as suggested forms in the law. The court must give reasonable notice of the hearing to the person who filed the lis pendens notice. In no event may the notice be given less than seven days before the hearing.
HEARING TO DISCHARGE LIS PENDENS NOTICE
The burden of proof at the hearing is on the person who filed the lis pendens notice to establish that (1) there is probable cause to sustain the validity of his claim, and (2) if the notice involves an allegation of an illegal, invalid, or defective transfer of a real estate interest, the transfer occurred fewer than 60 years before the court claim. After the hearing, the court may either deny the application or motion or order that the lis pendens notice be discharged.
APPLICATION TO STAY DECISION OF COURT PENDING APPEAL
Either party may appeal the court’s decision within seven days of the date it is handed down. The party taking such an appeal may within the seven-day period, file an application with the court which rendered the decision requesting a stay of the decision’s effect pending the appeal. The application must state the reasons for the request and a copy must be sent to the adverse party. A hearing on the application must be held promptly.
If the party taking the appeal gives a bond with surety in an amount the court deems sufficient to indemnity the adverse party for any damages, which might result from the stay, the court must stay the decision pending appeal.
MOTION TO DISCHARGE LIS PENDENS NOTICE BY ANY INTERESTED PARTY
An interested party (as opposed to just the property owner) may file a motion requesting the court to discharge a lis pendens notice in any case in which:
1. the lis pendens is not “intended to affect real property” as defined by law;
2. the recorded lis pendens notice does not contain the information required by law;
3. the property owner did not receive notice of the litigation the recording of the lis pendens notice as required by law; or
4. for any other reason the lis pendens notice never became effective or became in effective.
RECORDING OF DISCHARGE OF LIS PENDENS OR STAY
Any order of discharge or any order of a stay takes effect when a certified copy is recorded in the office of the town clerk in which the order of lis pendens was recorded. The court clerk is not permitted to provide any certified copies of the order until the time for taking an appeal elapses or, if applicable, until a decision is rendered relative to the granting of a stay.
EFFECT OF RECORDING ORDER OF DISCHARGE
When a certified copy of an order discharging a lis pendens notice has been recorded, the lis pendens no longer constitutes constructive notice of the litigation to any third party who acquires an interest in the property that is subject to the litigation.
DURATION OF NOTICE OF LIS PENDENS
No list pendens notice can be valid as constructive notice for more than 15 years unless it is re-recorded within 10 years after it was first recorded and the recording party serves a copy of the notice on the record owner within 30 days after it is re-recorded. If a lis pendens notice is re-recorded it is only valid for 10 years from the re-recording date.
Our office gets calls everyday from home purchasers who discover after taking possession that there is a Material Defect to the property purchased – defective sewer line, defective foundation, defective roof, defective mechanical systems, defective plumbing, and the remedy in these cases usually falls under the Missouri Merchandising Practices Act.
The Missouri Merchandising Practices Act (MMPA) exists to protect consumers.
Missouri’s Supreme Court has observed that the unfair practices declared unlawful by the MMPA are exceedingly broad and, for better or worse, cover every practice imaginable, and every unfairness to whatever degree. Because attorneys may recover attorneys’ fees if a defendant is held liable for an MMPA action, it may be easier to find a lawyer to take your case, even if the damages are not significant. The elements of an MMPA Claim
There are four elements to an MMPA claim: (1) the plaintiff purchased, or attempted to purchase, merchandise (which includes services) from a defendant in the state of Missouri; (2) the plaintiff’s purchase of, or attempt to purchase, merchandise (or services) was for personal, family, or household purposes; (3) the plaintiff suffered an ascertainable loss of money or property; and (4) the plaintiff’s ascertainable loss was a result of an action by a defendant that has been declared unlawful by § 407.020 RSMo.
The MMPA statute declares many things to be unlawful. For example, the MMPA specifically prohibits “any deception, fraud, … [or] misrepresentation.” It also prohibits “the concealment, suppression, or omission of any material fact.” However, reliance is expressly not an element of the MMPA. Thus, the fourth element requires the plaintiff to establish that his or her ascertainable loss was the result of either deception or fraud or a misrepresentation or the concealment or suppression or omission of any material fact by a defendant. Any one of these acts is sufficient to satisfy this element. Importantly, the MMPA specifically states that these acts can be before, during, or after the sale. The only requirement for this fourth element is that the ascertainable loss be the result of the unlawful act. There is no requirement that the ascertainable loss occur before the sale. Thus, damages which arise after the sale are also recoverable (as they would be in other cases).
If these elements are satisfied, then the plaintiff may recover his or her actual damages. Importantly, actual damages are not limited to the ascertainable loss. For instance, emotional distress damages may be recoverable. Reliance is not an element
The MMPA is a strict liability statute. As such, it does not require intent on the part of the actor, but it also does not require reliance. Indeed, even a consumer who admits that they did not believe the false statements may still recover damages arising from those false statements. Hess v. Chase Manhattan Bank, USA, N.A., 220 S.W.3d 758, 774 (Mo. banc 2007) (“a fraud claim requires both proof of reliance and intent to induce reliance; the MPA claim expressly does not.”) (citing 15 C.S.R. § 60-9.110(4)).
Likewise, the MMPA does not contain an intent requirement for civil liability for actual damages. Thus, even if the defendant does not know whether a representation is not truthful or otherwise know that it is committing an unlawful act, that does not defeat a plaintiff’s claim under the MMPA. See State ex rel. Webster v. Areaco Inv. Co., 756 S.W.2d 633, 635 (Mo. App. 1988) (“It is the defendant’s conduct, not his intent, which determines whether a violation has occurred.”). Damages recoverable under the MMPA
Upon a showing of the four elements of the MMPA claim, a plaintiff is permitted to recover all of his or her “actual damages.” The statute does not define what constitutes “actual damages.” There is little question that out-of-pocket losses and diminution of value damages are recoverable. But these are not the only types of actual damages which may be recovered under the MMPA. In addition, to the damages discussed below, a plaintiff may in certain circumstances recover punitive damages. Inconvenience damages
The law is clear that inconvenience damages are recoverable under an MMPA claim. Crank v. Firestone Tire & Rubber Co., 692 S.W.2d 397, 408 (Mo. App. 1985) (“when the inconvenience is coupled with a compensable element of damage, the inconvenience occasioned by the breach may be compensated where it is supported by the evidence and shown with reasonable certainty.”). Garden variety emotional distress damages
These types of emotional distress damages are recoverable in MMPA cases. In Lewellen v. Franklin, the Missouri Supreme Court En Banc affirmed a judgment in an MMPA case which awarded a consumer damages for “damage to her good credit”, “stress of being unable to make her loan payments” and “fear that she would go to jail.” 441 S.W.3d 136, 147 (Mo. banc 2014) (emphasis added). Likewise, in Dierkes v. Blue Cross & Blue Shield of Mo., the Missouri Supreme Court recognized that in fraud cases the benefit of the bargain rule can be inadequate, in which case “other measures of damages may be used.” 991 S.W.2d 662, 669 (Mo. banc 1999) Garden variety emotional distress damages do not require medical diagnosis
Garden variety emotional distress damage are “ordinary or common place emotional distress, which [are] simple or usual.” Recently, the Missouri Court of Appeals, Western District has held that garden variety emotional distress damages such as “humiliation may be established by testimony or inferred from the circumstances. Intangible damages, such as pain, suffering, embarrassment, emotional distress, and humiliation do not lend themselves to precise calculation.” Soto v. Costco Wholesale Corp., 502 S.W.3d 38, 55 (Mo. App. 2016). Specifically, these damages do not require medical testimony, and may be supported solely based upon testimony of the plaintiff and lay witnesses.
In conclusion, the MMPA is very broad and can be used against parties who use any unlawful act or deceptive practice in connection with the sale or services of a product for personal, family, or household purposes. You will see the MMPA asserted a lot of the time in Missouri class action cases where the damages may be minor but the defendant deceived hundreds or even thousands of consumers. You will also have a better chance of a lawyer taking your case because the MMPA allows for attorneys’ fees if you win your case.
For many, the use of a nominee manager is a simple and effective way to maintain private business matters private and to make the business owner a less attractive target for potential lawsuits, solicitations or other nuisances.
Nominee manager service is not about hiding things. It is about keeping private business matters private vis-a-vis on line records readily available to the general public. The Secretary of State (or equivalent agency) in each jurisdiction in the U.S. looks to that jurisdiction’s business statutes to determine what information it must collect and maintain in order for business entities to remain in compliance with the minimum disclosure requirements in that jurisdiction. For LLCs, the general requirement is to list the managers or the members of the LLC. Corporate Creations can provide a corporate nominee to appear as manager of the LLC in state on line public records. This is significant because the publicly available information relating to the LLC becomes that of the corporate nominee manager, not the business owner’s. The owner can now limit and better control who has their information. Further, the owner of the LLC retains all operational authority and remains in full and complete control of the LLC. The owner retains sole signature authority over any bank or other financial accounts, the owner retains the sole right to enter any lease arrangements or other contracts, etc. The corporate nominee does not touch or have any access or signature authority over any funds or company bank or financial accounts associated with the LLC. Also, the owner of the LLC can, at any time, remove the nominee manager from the LLC if they so choose. The nominee manager thus preserves the business owner’s privacy by satisfying the legal requirement for an LLC to have one or more listed managers.
The Kansas City Real Estate Market: Investor’s Guide For 2021 Jeff Rohde Written by Jeff Rohde
Kansas City has been named as one of the top 10 housing markets for buyers to consider. Looking at the recent performance statistics for the real estate market in Kansas City, its easy to understand why.
Active listings are down by nearly 50% year-over-year, while median sales prices have increased by almost 15% over the last 12 months. As homes become more expensive and harder to find, many households in Kansas City are choosing to rent rather than own.
In fact, growth and demand are two words that best describe the real estate market in Kansas City, according to one local economist. Today, it seems like Kansas City is growing everywhere you look: downtown, in the first-ring suburbs, and in the outlying areas.
Kansas City, Missouri (nicknamed ?KC? for short) is the largest city in the state and spans the Missouri and Kansas state lines. Located where the Missouri and Kansas Rivers meet, KC is known for its jazz music, pro sports teams, and delicious Kansas City-style barbecue. The economy is diverse, and the government is pro-business, two of the many things that help keep the real estate market in Kansas City growing strong and steady.
Population Growth
There are about 500,000 people in Kansas City itself and more than 2.1 million residents in the metropolitan area. The population of Kansas City has grown faster than St. Louis and other large Midwestern cities including Cincinnati and Cleveland.
Key Population Stats:
With more than 2.1 million residents, Greater Kansas City is the 38th most populated metropolitan area in the U.S. Population of Kansas City has grown by 0.73% year-over-year. The population of the nine-county Kansas City metro area is about the same as Austin, Las Vegas, and Pittsburgh, based on data from the Mid-America Research Council. People moving to Kansas City from other parts of the country account for about 50% of KCs population growth, according to a recent report from station KCUR in Kansas City. Over the last 10 years the population of Kansas City grew by 7%, and is expected to add another 400,000 residents by 2040.
Job Market Unemployment in the Kansas City MSA is down to just 4.5%, according to the BLS (as of Oct. 2020). The U.S. Bureau of Labor Statistics reports that some of the employment sectors in Kansas City showing the fastest signs of recovery include construction, trade and transportation, education and health services, and government.
Kansas City is a major transportation hub and is also home to high-growth tech sectors like IT and finance. Going forward, its likely that employment in the management and business, sales and office, and production and transportation sectors in Kansas City will continue to match or outpace U.S. averages.
Key Employment Stats:
GDP of Kansas City is nearly $138.5 billion, according to the Federal Reserve Bank of St. Louis, and has grown by more than 38% over the last 10 years. Kansas City, Missouri accounts for 56% of the metro area workforce with employment growing by 0.85% over the last 12 months. Largest employment sectors in Kansas City are education and health services, professional and business services, retail, trade, and manufacturing and construction. Major companies with headquarters in Kansas City include American Century Investments, Commerce Bancshares, Dairy Farmers of America, Garmin, Hallmark Cards, Interstate Bakeries (maker of Twinkies and Wonder Bread), Sprint Nextel, and one of the largest freight shipping companies in the world, YRC Worldwide. Ford and General Motors both have large manufacturing and assembly facilities in the Kansas City metro area, and Sanofi-Aventis has one of the largest drug manufacturing plants in the U.S. in south Kansas City. Largest federal government employers in Kansas City include the Department of Defense, Internal Revenue Service, Social Services Administration, and the Department of Veterans Affairs. The Kansas City Federal Reserve Bank is also headquartered here. Companies in Kansas City that recently created new jobs include Amazon Flex, CarMax, Hostess, U.S. Department of Agriculture, and Zillow Home Loans. Major universities in the Kansas City metro area include University of Kansas, University of Missouri-Kansas City, University of Central Missouri, and Park University. 92.8% of people in the metro area are high school graduates or higher, while 37.7% hold a bachelors degree or advanced degree. Four major Interstate highways (I-70, I-49, I-35, and I-29) pass through Kansas City. Major cities less than 800 miles from KC include Atlanta, Chicago, Dallas, Denver, Houston, and Minneapolis. Freight railroads serving Kansas City include Burlington Northern Santa Fe and Union Pacific. Shipping channels in Kansas City have 41 dock and terminal facilities in the metro area. Kansas City International Airport (KCI) is served by major airlines including Air Canada, American, Delta, Southwest, and United.
Real Estate Market
The Kansas City real estate market is booming with buyers snatching up new homes especially in the mid-price range.
As FOX4 recently reported, the surge of home buying in the Kansas City metropolitan area was completely unpredictable, even while building permits are up 15% compared to this time last year. Rising construction and materials costs help to make resale homes an attractive option, which further increases the demand for single-family homes in Kansas City.
Key Market Stats:
Zillow Home Value Index (ZHVI) for Kansas City is $176,763 (as of November 2020). Home values in Kansas City have increased by 10.8% year-over-year and are forecast to growth by another 11.0% in the next 12 months. Over the past five years home values in Kansas City have grown by 51%. Median list price of a single-family home in Kansas City is $215,000 based on the most recent report from Realtor.com (Nov. 2020). Median listing price per square foot for a home in Kansas City is $120. Listing prices for homes in Kansas City have increased by 16.7% year-over-year. Median sales price for homes in the Kansas City area is $250,000. Of the 217 neighborhoods in Kansas City, KCI – 2nd Creek is the most expensive with a median listing price of $410,000. Most affordable neighborhood for home buyers in Kansas City is Ruskin Heights where the median price of a home is $91,300.
Attractive Renters? Market
Kansas City is ranked as one of the top markets for renters by WalletHub. The report measures key criteria such as activity in the rental market, affordability, and quality of life rating. A low supply of housing inventory may also be helping to drive the demand for single-family rentals in Kansas City. As the Kansas City Business Journal notes, the metro area had the second-largest decline in active housing supply in the entire country.
Key Market Stats:
Average rent in Kansas City is $1,037 per month based on the most recent research from RENTCaf? (as of Oct. 2020). Rents in Kansas City have increased 3% year-over-year. Over the past three years rents in metropolitan Kansas City has grown by nearly 9.2%. 41% of the rental units in Kansas City rent for more than $1,000 per month. Renter-occupied households in Kansas City make up 45% of the total occupied housing units. Neighborhoods in Kansas City with the lowest rents include Blenheim Square – Swope Park Campus, Mount Cleveland – Sheraton Estates, and Oak Park where rents all average $660 per month. The most expensive neighborhoods to rent in Kansas City include Wendell Phillips, Paseo West, and Columbus Park where rents range between $1,391 and $1,463 per month.
Historic Price Changes & Housing Affordability Each month Freddie Mac publishes its House Price Index report (FMHPI) that allows rental property investors to track both short- and long-term historical price trends.
The most recent FMHPI from Freddie for home price trends in metropolitan Kansas City reveals:
October 2015 HPI: 127.45 October 2020 HPI: 187.48 5-year change in home prices: 47.1% One-year change in home prices: 12.1% Monthly change in home prices: 1.0% Affordability is another tool real estate investors can use to help forecast the current and future demand for rental property in Kansas City. According to the annual report from Kiplinger that tracks the affordability of housing in the top 100 U.S. markets:
Since the last real estate cycle market peak in May 2006, home prices in Kansas City have decreased by 0.3%. Since the last real estate cycle market bottom in March 2012, home prices in Kansas City have increased by more than 66%. Kansas City has an affordability index of 3 out of 10, meaning the metro area is one of the more affordable places to own a home in the U.S.
Quality of Life
Cost of living has a major effect on the quality of life in an area. According to the cost of living calculator from NerdWallet, the cost of living in Kansas City is more than 40% less than big expensive urban areas such as San Francisco, New York City, and Seattle.
Key Quality of Life Stats:
Forbes ranks Kansas City as one of the best places for business and careers, job growth, and education in the U.S. with a cost of living 3% below the national average. Total per capita tax burden in Kansas is about 10% less than the national average. Kansas City is one of the least-congested metro areas in the U.S. and has one of the shortest commuting times. The RideKC Bike system has 42 locations across Kansas City, and the city plans to build 1,000 miles of bike lanes and pedestrian walks over the next 20 years. KC Streetcar serves the Central Business District, and connects the River Market, Crown Center, Union Station, and Crossroads Art Districts. Kansas City has more boulevards than any city in the world except Paris, earning it the nickname ?Paris of the Plains?. The NFL Kansas City Chiefs, MLB Kansas City Royals, and MLS Sporting Kansas City soccer teams give residents of Kansas City and real estate investors plenty to cheer about.
Missouri prohibits sex offenders from living within 1,000 feet of a public or private school up to the 12th grade or childcare facility which existed at the time the offender established his/her residency. In addition, sex offenders are prohibited from working or loitering within 500 feet of a school, childcare facility, or public park with playground equipment or a public swimming pool. Residency restriction policies are universally applied to all registered sex offenders.
Have you always wondered how you go about making changes to your house plans once the project is already underway? Or, perhaps youre in the middle of a project right now, and youre wondering how to proceed. The good news is that you can make changes ? to an extent. Once parts of your new home are in place, you wont be able to do a major redesign or make structural changes. But you can make changes to many of the smaller details. We?ll give you an overview of the things you can and cant do once construction has started.
The Trouble with Structural Changes
The key thing to remember about a home is that designers go to great lengths to make sure that loads are properly balanced from the roof all the way down to the footing. This means that any major structural changes should be made during the design phase, not during the construction phase. Theoretically, you could add space or move rooms around once construction has started, but you?ll run into some major problems:
You?ll need new drawings and new permits for the changes, which means you?ll spend time and money as your designer and your local engineer go over the changes and approve everything.
Changing the layout of a home changes the structure of the home. You?ll face major delays as your builder deconstructs most or all of the things that are already in place to start over with new footers, new roof trusses and more.
The cost of your new home will skyrocket. Not only will your builder need more labor and materials to make the changes, but you?ll also be responsible for paying for the time and materials that have already been used but cant be reused.
major structural changes should be made during the design phase, not during the construction
Which Changes Can You Make?
This isnt to say that you cant make changes at all. Changes that involve the homes structure may be a bad idea, but there are many other, smaller changes that you can make.
You can decide to go with a different roofing or siding material. However, keep in mind that if you make a drastic change ? say, from lightweight shingles to an extremely heavy tiled roof, your home may need extra structural support, which would count as a structural change.
Before the plumbers and electricians arrive, you can tweak the layout of your fixtures, but you?ll need to consult with your designer and your builder to see where they can be moved to.
You can go with different kitchen and bathroom cabinetry and you can even change up the layout of those cabinets if desired.
You can also make changes to paint and flooring choices, wallboards, window styles and more. However, all of these changes need to be made sooner rather than later. Dont expect to change the shape and size of your windows if your builder has already installed the framework for them. You should also make every effort to specify a change before your builder orders the materials, otherwise you could end up paying for the materials you originally specified as well as your new choice.
Overall – it’s truly most cost effective to make changes during the design phase of your home – before construction starts.
Experts Predict What The Housing Market Will Be Like In 2021
Brenda Richardson
Brenda Richardson Senior Contributor
The housing market is largely being driven by a shortage of available housing inventory.
The housing market has been on fire this year with record-low mortgage rates and a sudden wave of relocations made possible by remote work. Meanwhile, home prices have pushed new boundaries as buyer demand continues to surge. As we near the end of 2020, heres a look at the expectations of real estate experts for 2021.
Danielle Hale, realtor.com chief economist: We expect sales to grow 7 percent and prices to rise another 5.7 percent on top of 2020s already high levels. While we expect mortgage rates to tick up gradually, sales and price growth will be propelled by still strong demand, a recovering economy, and still low mortgage rates. High buyer demand and still-lagging supply will keep prices growing, but at a slower pace than 2020 as buyers contend with mortgage rate and price increases that create affordability challenges.
While younger Millennial and Gen-Z buyers are expected to play a growing role in the housing market, fast-rising prices will create a bigger barrier to entry for the many first-time buyers in these generations who dont have existing home equity to tap for down payment savings. Although supply is expected to lag, we do expect the declines to slow and potentially stop by the end of the year as sellers grow more comfortable with the market environment and new construction picks up. Single-family housing starts are expected to grow another 9 percent in 2021. On the whole, the market will remain seller-friendly, but buyers will still have relatively low mortgage rates and an eventually improving selection of homes for sale.
Robert Dietz, senior vice president and chief economist, National Association of Home Builders: With home builder confidence near record highs, we expect continued gains for single-family construction, albeit at a lower growth rate than in 2019. Some slowing of new home sales growth will occur due to the fact that a growing share of sales has come from homes that have not started construction. Nonetheless, buyer traffic will remain strong given favorable demographics, a shifting geography of housing demand to lower-density markets and historically low interest rates.
But supply-side headwinds will persist. Residential construction continues to face limiting factors, including higher costs and longer delivery times for building materials, an ongoing labor skills shortage, and concerns over regulatory cost burdens. For apartment construction, we will see some weakness for multifamily rental development particularly in high-density markets, while remodeling demand should remain strong and expand further.
Elana Knoller, Better.com chief product officer: Homeowners and the housing industry at-large will utilize technology even more next year to engage buyers and execute deals. 2020 changed the game in everything from touring properties to looking for and locking rates, and participating in secure eClosings.
We expect homeowners looking to refinance will do so sooner rather than later to take advantage of the low interest rate environment. While the Fed has indicated it doesnt plan to hike rates soon, uncertainty over what the new administration might do in addition to broad availability of a Covid-19 vaccine, on top of what we hope is an improving economy, could bring an end to the ultra-low rates that weve seen this year. We will continue to see the growth of Millennial home buying regardless of the rate backdrop.
Todd Teta, chief product officer at ATTOM Data Solutions: Were exiting 2020 with a number of dynamics that will more than likely keep this crazy housing market going. There is incredibly low inventory, with less than 500,000 homes for sale, mortgage rates are at 50-year lows, and theres no sign yet of distressed sellers from the recession coming out. These supply and demand factors will push prices even higher in the first half of the year. Inventory and pricing should ease a bit in the second half of the year, and larger economic headwinds could start showing up. Until then, buyers should be cautious and sellers jubilant.
Selma Hepp, CoreLogic deputy chief economist: While 2020 did not surprise with its fair share of surprises, 2021 could still have more surprises in store for us. Still, expectations for the housing market remain generally positive. First, interest rates, which have motivated many buyers in 2020, are expected to remain low and will help ameliorate some of the affordability concerns resulting from rapid home price appreciation seen in 2020. In other words, low mortgage rates continue to provide greater purchasing power, especially for first-time home buyers.
Second, first-time home buyers will remain a strong force in the market as the largest cohorts of Millennials are turning 30 ? critical household formation years. But also, the oldest Millennials are increasingly contributing to the trade-up market. As a result, 2021 home sales activity is expected to remain strong and outpace 2020 levels. Third, inventory levels are likely to see some improvement, partially from sellers who have been on the sidelines, partially from distressed homeowners, and partially from more new construction. But the housing market will continue to struggle with an imbalance between supply and demand, which will lead to sustained competition among buyers and further home price appreciation, albeit at a slower pace than seen in 2020.
Amy Kong, president of the Asian American Real Estate Association of America: Asian American households saw the biggest income growth of any racial or ethnic group in the United States over the past decade and a half ? almost 8% compared to a 2.3% national average. Education certainly is a major contributor to this growth with more than 54% of Asian Americans having a bachelors degree compared to the national average of 32%. With this income growth and low interest rates, we project a continued increase in homeownership rates within our community across non-traditional markets, particularly in the Southwest and Southeast region of the country. States like North Carolina, Alabama and Texas are seeing an increase in net migration of Asian Americans.
Although this is good news altogether, lets not forget that theres an income disparity within our community. While a lot of Asian American households are experiencing income growth, weve also been hit hard with the pandemic with small businesses closing and jobs lost due to Covid-19.
Jesse Vaughan, co-founder of Landed: Essential professionals and individuals who can work from home are buying homes. They are also changing housing preferences, for example, seeking more space. Combined with record-low mortgage rates and forbearance programs, odds are the housing market will remain strong, but it is not a foregone conclusion. There is still significant risk to the downside if economic normalization coming out of the pandemic is botched or significantly delayed.
The trend of Millennials moving to the suburbs and mid-size cities will continue after the pandemic subsides as it was in motion before Covid-19. The pandemic has accelerated what is a generational trend: getting married, having children and desiring more space. I expect price increases in the highest-cost metropolitan areas, such as San Francisco and New York, will trail rising mid-size cities, such as Austin, Texas and Salt Lake City.
Daryl Fairweather, chief economist of Redfin: Although the U.S. may be able to vaccinate most of its citizens by the end of 2021, many countries will struggle to distribute vaccines. Thus, the global economic recovery could take much longer, which would make U.S. mortgage-backed securities attractive to international investors, keeping mortgage rates low. Even as the pandemic hopefully nears its end, Americans will continue to buy homes that fit their new lifestyle. As a result, 2021 will see more home sales than any year since 2006. Annual sales growth will increase from 5% in 2020 to over 10% in 2021.
Rising prices for existing homes will increasingly drive more buyers to consider a new one. And because home buyers are now more eager to buy in suburban and rural areas where land is cheaper than in the cities, there will be more areas where homes can be built profitably. By the end of the year, the homeownership rate will rise above 69% for the first time since 2005.
Antoine Thompson, executive director of the National Association of Real Estate Brokers: As the nation continues to grapple with Covid-19, the 2021 housing market will continue to have low interest rates. Congress will likely approve funding and legislation by the Biden-Harris administration for the creation of a new closing cost and down-payment assistance program and/or tax credit to help increase the rate of Black and minority homeownership. There will be a push by housing and civil rights advocates to have the Biden-Harris administration fix the fair housing and community reinvestment policies rolled back by the Trump-Pence administration.
David Howard, National Rental Home Council executive director: Two things to watch are supply and affordability. Will there be enough homes for those that need them, and at what price? Covid-19 served to accelerate a move toward single-family home living that had started to take shape over the past few years. Much of this move is being led by Millennials, who are transitioning squarely into prime household formation years. However, that generation is also the least wealthy at a time when the cost of homeownership continues to climb. We believe these demographic factors bode well in the coming years for the rental housing market, particularly single-family rental homes. Millennials? demand for housing is not going to diminish, but it may just take a little longer to make homeownership a reality.
Paul Lueken, chief executive of Draper and Kramer Mortgage Corp.: As the Covid-19 vaccine is distributed, the economy will begin to open up and recover. Economic activity will most likely return to pre-pandemic levels by late 2021 or early 2022. The Federal Reserve will continue to support a low interest rate environment for much of 2021, and mortgage rates can be expected to remain low for most of the year. Home sales will therefore stay strong due to the low interest rates and the recovering economy.
Gary Acosta, co-founder and CEO of the National Association of Hispanic Real Estate Professionals: Nationwide, low interest rates will fuel homeownership demand in the first half of the year while employment gains will keep demand high in the second half of the year. Texas, home to many Latinos and a greater number of newcomers, will see the highest number of new homeowners. The pandemic and subsequent exodus from some cities will cause home prices in New York and California to flatten with modest price declines in Manhattan and San Francisco.
Lawrence Yun, National Association of Realtors chief economist: Home sales surprised with a surge in the second half of 2020 and the momentum will carry into 2021. The record low mortgage rates have been the key factor for home buying even in a difficult job market condition. As we enter 2021, jobs will steadily recover especially knowing that the vaccine distribution is just around the corner.
The interest rates will continue to be favorable since the Federal Reserve has indicated such. And supply will rise based on the higher number of housing starts of single-family homes. This will give consumers more choices, and more importantly, will tame home price growth. Demand could be stronger in the outlying suburbs and in more affordable metro markets, while the downtown locations could witness softer demand.
Steve Baird, president and CEO of Baird & Warner: As we all found ourselves spending more time at home this year, the market for new homes and even secondary residences exploded, and we expect that to continue in 2021 as priorities change in response to Covid-19. Many buyers arent waiting for a return to normal. Instead, theyre anticipating a new normal in which they live, work and entertain differently than ever before and view housing through that lens.
Edward Mermelstein, founder and CEO of One and Only Holdings: With the new administrations plan to offer housing incentives, we can expect to see an uptick in the housing market. The luxury real estate front will continue to experience the slowdown that started two years ago, however, areas that have been battered throughout the pandemic such as San Francisco, Los Angeles, and New York City should begin to pick back up with federal aid in the new year.
Jarred Kessler, CEO and co-founder of EasyKnock: As companies announce plans to allow employees to permanently work remotely, high-tax cities will continue to see a talent drain as people relocate in search of cities with a lower cost of living. Second-tier cities like Austin, Charlotte and Tampa will experience a residential building boom.
As Covid-19 rages on and with new restrictions likely to be put into place, the financial options for homeowners is growing scarce. 2021 will see an increase of alternative financing options for homeowners to provide additional flexibility during times of financial crisis.
The federal government will create an incentive stimulus program for landlords and homeowners to allow renters or owners to remain in their homes and will extend the eviction moratorium to line up with the vaccine rollout.
Tendayi Kapfidze, LendingTree chief economist: The housing market should continue to be a bright spot in 2021. Key to this will be mortgage rates that we expect to remain low as the Fed keeps up its security purchases. A less appreciated factor is a savings rollover from 2020 that will support home purchases by wealthier households. Additional fiscal stimulus could also find its way into the housing market. The new Biden administrations policies may also increase access to the housing market through things like down payment support. Finally, student loan forgiveness could boost the ability of many to afford buying a home and saving for down payments.
There are some downside risks to this outlook. The economy will be recovering as vaccines lead us down the path of normalcy, but the labor market could remain weak. A tepid labor market recovery would be accompanied by tepid income growth. Job losses are moving up the income scale and transitioning to permanent losses from temporary. Lending standards are likely to tighten further as the end of forbearance and foreclosure moratoriums are a wild card, potentially weighing on home prices in some areas. The rent crisis is another wild card and could bleed in the owner-occupied market via adding supply or affecting the financial markets.
Keith Gumbinger, vice president of mortgage information website HSH.com: While a good year for home sales is likely, it may be hard to improve much on 2020. Record and near-record low mortgage rates will continue to create demand for homes, and these come amid demographic tailwinds from Millennials moving into their prime home-buying years, enhanced by the Covid-19 work-from-home or anywhere trend. However, sales will be met by tempering forces: declining affordability due to still-rising home prices and a lack of supply of houses, especially existing homes. The new home market may provide options for some home buyers, so sales there should be well supported, too.
Sara Rodriguez, president of the National Association of Hispanic Real Estate Professionals: The real estate market will continue to be strong for the first half of the year. There is still pent-up demand for inventory, and the historic low interest rates dont seem like they will rise next year. Due to Covid-19, we have seen a decrease in construction materials, so we dont see a lot of new construction to keep up with this demand. Although we will see some distressed homes come on the market from those people in forbearance or who have lost their jobs due to Covid-19, the demand will be there to absorb additional homes in most markets.
Susan Wachter, Sussman Professor of Real Estate and Finance at The Wharton School of the University of Pennsylvania: The residential real estate market will prosper in 2021, even as Covid-19 continues to ravage the economy, delaying full recovery to 2022. Low interest rates will prevail, resulting in lower mortgage costs for home buyers who can qualify. We will see slower price rises in the mid-single digit range, as affordability gaps cut demand.
Although 2021 will not see the spike in demand for residential property that characterized 2020, I expect to see a continuation in 2021 of trend shifts catalyzed by the pandemic. While 2021 will see home builders responding to higher prices, supply and inventory will still be limited. Fed policy will enable lower mortgage rates for highly creditworthy borrowers, while inflation may begin to emerge. Finally, the Millennial generation will continue to be the defining demographic group in the housing market for years to come.
Joe Tyrrell, president, ICE Mortgage Technology: In addition to record-breaking volume for refinance and purchases, there has been an increase in relocations, as people are shifting away from metropolitan areas to more rural ones. We expect this migration trend to continue as people redefine what home means for them. We will likely see borrowers invest more in their houses and choose home locations in places that fit their lifestyles, versus the need to be close to offices or particular schools.
We expect lenders to adopt true automation that increases their scale, especially in the shift to eClosings as the standard, while also reducing their dependency on staff for tasks that can and should be automated. More than ever, the goal for lenders will continue to be to serve borrowers better, faster and more efficiently by leveraging technology that fundamentally supports digitally closing loans.
Jeff Tucker, Zillow senior economist: We expect to see the housing market continue its bull run from this summer and autumn well into 2021. Home value appreciation will approach 9% or even 10% by July, before cooling somewhat down toward 7% appreciation. This rapid price growth will be driven by the same factors that took the steering wheel in 2020: strong demographics, low mortgage rates, and inadequate supply.
The Millennial generation is moving into their mid-30s, bringing a wave of demand from renters looking to buy their first homes. Mortgage rates may inch back up to around 3%, but even at that level, they will be making home purchases more attractive all along the price range. And although builders are finally firing on all cylinders delivering new homes to the market, it will take them a long time to make up for the home building deficit we accumulated from 2008 to 2019.
The clearest barometer we have that reflects all these dimensions of the housing market is active inventory, which is down more than one third year-over-year. That suggests continued fast price appreciation ahead and fierce competition between buyers.
Kiran Vattem, executive vice president, chief digital and technology officer at ServiceLink: As a growing real estate market goes digital, cybersecurity moves front and center. Low mortgage rates and homeowners? growing desire to move to suburbs is driving todays booming residential real estate market, with no plans to slow in 2021.
While Covid-19 has accelerated digital adoption across the mortgage life cycle ? making real estate transactions more automated and streamlined ? it has also opened the industry up to new security vulnerabilities and potential for hackers to access sensitive data. In 2021, the industrys focus will probably shift in order to balance front-end innovation with the tech that can be leveraged to fortify the mortgage ecosystem from cybersecurity risks in an increasingly digital future.
Dan Kessler, chief executive of Harbor: Consumers will prioritize home safety and self-sufficiency as natural disasters continue. The home is a key frontier yet to be enabled by technology. If we use software to help us learn faster, exercise more or communicate, why dont we use software to make our homes safer and more efficient? I?m not talking about smart home tech per se, but rather the basic safety and maintenance of the home is not yet managed by any meaningful technology.
In 2021, I see preparedness, readiness and home self-sufficiency being a major trend thats going to dominate a set of habits, practices and products for consumers. Increasingly, we?ll see this become a part of goals and planning as uncertainty ? and risks ? rise. You cant plan for future success if you dont feel secure at a fundamental level, and Covid-19 validated that theres a need for technology and tools around emergency preparedness. In the real estate market, we will see consumer need for security drive tech-enabled safety products.
Kris Lindahl, CEO and founder of Kris Lindahl Real Estate: After seeing record buyer engagement coupled with incredibly low inventory, we?ll see a gradual increase in homes for sale in the late winter and early spring, followed by a huge loosening in the summer. I wouldnt be surprised if inventories tracked closely with vaccine rollout. So many people have been sitting on the sidelines waiting for a feeling of certainty, a light at the end of the tunnel or any positive news on the pandemic.
We?ll have a tough early winter as far as inventory goes, but once people start to feel some positive momentum around Covid, we could see the largest and fastest influx of homes on the market in a century. We?ll also see continued growth in people opting for guaranteed offers and other ways of selling that emphasize certainty, control and convenience.
People are realizing that they no longer have to deal with showings and open houses, and as long as they can still get a competitive offer in their home, they?ll do it. And in general, we?ll see more people wanting to buy based on how much ?home? has meant to people over the course of the pandemic. Weve seen our homes become our schools, offices, gyms, restaurants and entertainment centers. Even post-pandemic, people will want space, privacy and backyards.
Eric Fontanot, president of Patten Title: We expect to see home prices continue to climb to new highs. This continued rise is due in large part to inventory not having caught up to the strong buyer demand, builders not being able to get homes on the ground fast enough, and low interest rates continuing to help with buying power.
We also anticipate a return of more traditional seasonality in the residential market. For buyers, the forecast will most likely consist of a highly competitive market during the traditional buying months due to low inventory and low interest rates, which will drive housing prices to reach near all-time highs. This also means buyers will have to contend with challenges of affordability, especially when rates rise, even ever so slightly, which could happen toward the end of 2021.
For sellers, the rollover from 2020 should mean consistent home sales, relatively low time on market, and at or above asking price offers, especially during the peak season. It is not out of the realm of possibility that home prices hit new highs in 2021. That said, when rates begin to taper off or rise, the balance between affordability and asking price tilts, causing the market to slow.
Scott Verlander, senior vice president and head of retail and affiliate banking at TIAA Bank: Housing demand will continue to outstrip supply in 2021. Following the initial downturn, there has been a V-shaped recovery in home-improvement spending, home prices and new construction projects. But the inventory of houses for sale remains low as people continue to invest in their homes by refinancing and renovating while the market recovers.
Virtual property tours have the potential to become the new normal in the home-buying process. 3D tours are efficient for buyers and sellers alike because they create a 24/7 open house.
Although the housing market is healing and by many measures doing better than before the pandemic, inventory remains housings long haul symptom. There were an insufficient number of homes for sale going into 2020 in large part due to an estimated shortfall of nearly 4 million newly constructed homes. Much to the surprise of many, the coronavirus and recession did not lead to a distressed seller driven inventory surge as we saw in the previous recession, but further reduced the number of homes available for sale. Starting in fall 2020 the housing market saw more than half a million fewer homes available for sale than the prior year. We expect to see an improvement in the pace of inventory declines starting just before the end of 2020 that will continue into Spring 2021, so that while the number of for-sale homes will be lower than one year ago, the size of those declines will drop. We expect a more normal seasonal pattern to emerge which will contrast with the unusual 2020 base and lead to odd year over year trends, but taken as a whole we expect inventories to improve and, by the end of 2021, we may see inventories finally register an increase for the first-time since 2019.
While total inventories will remain relatively low thanks to strong buyer demand, the number of new homes available for sale and existing home sellers, what we call ?newly listed homes,? will be more numerous which will help power the expected increases in home sales.
With remote work becoming much more common, home shopping in suburban areas had a stronger post-COVID lockdown bounce back than shopping in urban areas, starting in the spring and continuing through the summer. These trends, which have been visible in rental data as well, suggest that city-dwellers?freed from the daily tether of a commute to the office and looking for affordable space to shelter, work, learn, and live?were finding the answer in the suburbs. In fact, a summer survey of home shoppers showed that while a majority of respondents reported no change in their willingness to commute, among those who did report a change, three of every four reported an increased willingness to commute or live further from the office.
Even before the pandemic, homebuyers looking for affordability were finding it in areas outside of urban cores. The pandemic has merely accelerated this previous trend by giving homebuyers additional reasons to move farther from downtown.
The largest generation in history, millennials will continue to shape the housing market as they become an even larger player. The oldest millennials will turn 40 in 2021 while the younger end of the generation will turn 25. Older millennials will be trade-up buyers with many having owned their first homes long enough to see substantial equity gains, while the larger, younger segment of the generation age into key years for first-time homebuying. At the same time, Gen Z buyers, who are 24 and younger in 2021, will continue their early foray into the housing market.
In early 2020, younger generations, including Millennials and Gen Z, were putting down smaller downpayments and taking on larger debts to take advantage of low mortgage rates despite rising home prices. In fact, only a quarter of respondents to a summer survey reported lowering their monthly mortgage budget or not changing their home search criteria in response to lower mortgage rates. The other three-quarters said low rates would enable them to make a change to their home search, and the most commonly cited change was buying a larger home in a nicer neighborhood.
We expect these trends to persist as rising home prices require larger upfront down payments as well as a bigger ongoing monthly payment due to the end of mortgage rate declines. Early in the pandemic period, there was concern that temporary income losses could prove to be particularly disruptive to younger generations? plans for homeownership, as these were the groups expected to face income disruptions that might require dipping into savings which would otherwise be used for a down payment. Thus far, these disruptions have not had an effect on overall home sales, and some home shoppers report an ability to save more money for a downpayment as a result of sheltering at home, but we are still not completely through the pandemic-related economic disruption.
The ability to work from home is not new. In fact, as long ago as 2018, roughly one-quarter of workers worked at home, up from just 15 percent in 2001. More recently, a scan of real estate listings on realtor.com in early 2020 showed that in the ten metro markets where they are most common, as many as 1-in-5 to 1-in-3 home listings mentioned an ?office.
Remote working was already more common among home shoppers than the general working population, with more than one-third of home shoppers reporting that they worked remotely even before the coronavirus. Additionally, remote working has gained an unprecedented prominence in response to stay-at-home orders and continued measures to quell the spread of the coronavirus. Another 37 percent of home shoppers reported working remotely as a result of the coronavirus.
While a majority of home shoppers reported a preference for working remotely, three-quarters of workers expect to return to the office at least part-time at some point in the future. However, the ability to work remotely was a factor prompting a majority of respondents to buy a home in 2020. This was the case even when most expected to return to offices sometime in 2020.
As remote work extends into 2021 and in some cases employers grant employees the flexibility to continue remote work indefinitely, expect home listings to showcase features that support remote work such as home offices, zoom rooms, high-speed internet connections, quiet yards that facilitate outdoor office work, and proximity to coffee shops and other businesses that offer back-up internet and a break from being at home, which can feel monotonous to some, to become more prevalent
While it is no surprise that homeowners want to maximize the value of their property, it might come as an eye-opener that proximity to certain grocery stores can substantially improve the value of real estate.
Surprising Statistics
According to a recent study from ATTOM Data Solutions, major grocery store chains like Trader Joes, Whole Foods, and ALDI, were found to increase home prices. In fact, across the country, the average home value near Trader Joes is $608,305, compared to $521,142 near Whole Foods and $222,809 near ALDI. The average home seller return on investment over a five-year span with these grocery stores was 37%, with homes near a Trader Joes having an average home seller ROI of 51%, compared to homes near a Whole Foods with an average home seller ROI of 41% and ALDI at 34%.
Why It Matters
The findings are compelling because homebuyers, whether they are solely looking to invest in real estate or simply seeking to raise a family, may count on their purchase paying off by just living near certain grocery store chains as those chains seem to provide a quality return on investment and secure higher home equity. For an investor, real estate near certain grocery store chains contributes to strong home flipping returns and attractive home price appreciation. In short, proximity to certain grocery stores can substantially improve the values of residential property nearby, particularly if the stores offer high quality service and products.
Historically, residential home buyers sought properties nearby schools that they wished for their children to attend. In terms of increasing home values, it almost seems as though purchasing real estate near certain grocery chains may have the same importance or may have usurped purchasing near desirable schools.
Moving Forward
Among the core tenants of real estate is location ? location ? location! After all, residential real estate purchasers who choose the ?best? locations will have an asset that appreciates more than the norm. With that in mind, whether you are an investor looking for more bang for your buck or a homebuyer looking to purchase residential real estate near conveniences such as grocery chains, look for a well-branded chain like Trader Joes, Whole Foods, or ALDI as those grocery chains seem to have a significant statistical positive effect on property values.
The National Association of REALTORS? identified the top 10 markets that have shown resilience during this pandemic period and that are expected to perform well in a post-COVID-19 environment. In identifying these markets, NAR considered a variety of indicators that it views to be influential to a metro areas recovery and growth prospects in a post-pandemic environment in 2021-2022.
In alphabetical order, the Top 10 markets are:
Atlanta-Sandy Springs-Alpharetta, Georgia
Boise City, Idaho
Charleston-North Charleston, South Carolina
Dallas-Fort Worth-Arlington, Texas
Des Moines-West Des Moines, Iowa
Indianapolis-Carmel-Anderson, Indiana
Madison, Wisconsin
Phoenix-Mesa-Chandler, Arizona
Provo-Orem, Utah
Spokane-Spokane Valley, Washington
A limited partnership (LP)?not to be confused with a limited liability partnership (LLP)?is a partnership made up of two or more partners. The general partner oversees and runs the business while limited partners do not partake in managing the business. However, the general partner has unlimited liability for the debt, and any limited partners have limited liability up to the amount of their investment.
Limited Partnership
A limited partnership exists when two or more partners go into business together, but one or more of the partners are only liable up to the amount of their investment.
The general partner of the LP has unlimited liability.
There are three types of partnerships: limited partnership, general partnership, and joint venture.
Most U.S. states govern the formation of limited partnerships, requiring registration with the Secretary of State.
Understanding Limited Partnerships
Generally, a partnership is a business owned by two or more individuals. There are three forms of partnerships: general partnership, joint venture, and limited partnership. The three forms differ in various aspects, but also share similar features.
In all forms of partnerships, each partner must contribute resources such as property, money, skills, or labor to share in the business’ profits and losses. At least one partner takes part in making decisions regarding the business’ day-to-day affairs.
All partnerships should have an agreement that specifies how to make business decisions. These decisions include how to split profits or losses, resolve conflicts, and alter ownership structure, and how to close the business, if necessary.
LPs are often formed to manage passively ran businesses and for raising money for investment purposes.
Types of Partnerships
An investment partnership is a type of business formation. Its a partnership thats generally structured as a holding company that’s created by individual partners or companies for investing purposes. These investments can be other businesses, securities, and real estate, among other things.
A limited partnership is usually a type of investment partnership, often used as investment vehicles for investing in such assets as real estate. LPs differ from other partnerships in that partners can have limited liability, meaning they are not liable for business debts that exceed their initial investment. In a limited liability company (LLC), general partners are responsible for the daily management of the limited partnership and are liable for the company’s financial obligations, including debts and litigation. Other contributors, known as limited or silent partners, provide capital but cannot make managerial decisions and are not responsible for any debts beyond their initial investment.
A general partnership is a partnership when all partners share in the profits, managerial responsibilities, and liability for debts equally. If the partners plan to share profits or losses unequally, they should document this in a legal partnership agreement to avoid future disputes.
A joint venture is a general partnership that remains valid until the completion of a project or a certain period elapses. All partners have an equal right to control the business and share in any profits or losses. They also have a fiduciary responsibility to act in the best interests of other members as well as the venture.
Limited Liability Partnership
A limited liability partnership (LLP) is a type of partnership where all partners have limited liability. All partners can also partake in management activities. This is unlike a limited partnership, where at least one general partner must have unlimited liability and limited partners cannot be part of management.
LLPs are often used for structuring professional services companies, such as law and accounting firms. However, LLP partners are not responsible for the misconduct or negligence of other partners.
Special Considerations for a Limited Partnership
Almost all U.S. states govern the formation of limited partnerships under the Uniform Limited Partnership Act, which was originally introduced in 1916 and has since been amended multiple times. The most recent revision was in 2001.1
?The majority of the United States?49 states and the District of Columbia?have adopted these provisions with Louisiana as the sole exception.2?
To form a limited partnership, partners must register the venture in the applicable state, typically through the office of the local Secretary of State. It is important to obtain all relevant business permits and licenses, which vary based on locality, state, or industry. The U.S. Small Business Administration lists all local, state, and federal permits and licenses necessary to start a business.
Unemployment rates will continue to improve
There will be a slight uptick in mortgage defaults
Lending standards will loosen
There will be a permanent shift working remotely
Low interest rates will stick around
There will be more government spending and increased national debt
People will continue to invest in more stable, cash flowing assets
The number of renters will rise
Consumers will leave big cities to buy or rent new homes
Inflation will increase
Home prices will continue rising, especially in the affordable range
Political certainty will calm the real estate market
Tariffs will continue to impact the cost of goods and services, driving prices up.
Every business decision is followed by a lot of anxiety. Thats because there is a variety of issues that may occur before, during and/or after it. Transactions are one of the most problematic fields when it comes to real estate. Some situations just cant be avoided, while you can try to prevent others. Make sure to inform yourself about common situations that may occur during the buying and selling process. This way, you?ll be able to recognize if youre in a bad situation. Here are the seven most common things that can go wrong during a real estate transaction.
Paperwork
Real estate transactions involve a lot of paperwork. If theres any document missing, it can sabotage a deal. Many agents start marketing a property without even looking through its profile. This way, theres a possibility that the transaction can go wrong due to missing documents. Thats usually because when they see a good title behind a property, they dont see a need in doing any research. Therefore, be sure that both parties have prepared, read, and signed all the paperwork thats required.
Money
A lot of people depend on mortgage companies when purchasing a property. This is, of course, a common thing if someone has enough income to support the mortgage. But, if someone gets denied, it can cause the deal to turn sour. In order to avoid this from happening, make sure to acknowledge the amount of money that a buyer has direct access to.
Fixing Refusal
There are situations where the seller refuses to make repairs that were agreed upon beforehand. In this case, theres not much you can do about it. If all parties agree, you can try hiring someone to fix those issues, but remember to include the renovation pricing in the paperwork. Unfortunately, buyers usually back off when they see that the seller was dishonest at any given moment. So, its best to get to know the seller before you start marketing a property.
Inflexibility
Some people are really stubborn when it comes to negotiating. Regardless of the fact whether a buyer might come across their dream house or not, theres a possibility that he or she might not get along with the seller. In order to make a deal, both parties should keep in mind that they should compromise a bit. Parties can disagree on a lot topics, starting from pricing to who will cover the repair costs. In order to avoid these situations, get to know the seller before you introduce him to the potential buyer. This way you?ll be able to give some tips to the person thats willing to buy the property.
Problematic Property
It is a common procedure for a home inspection to arrive after the deal is set. This way, the buyer assures himself that there are no hidden issues with the property. If a home inspector finds something thats problematic enough to postpone the closing date, theres a big possibility that the buyer will pull out. So this doesnt happen, make sure to get a pre-inspection and see if theres anything that needs to be fixed. If so, consider hiring a contractor that will fix these issues beforehand.
Indecision
There are people who just cant make up their mind like sellers who arent sure if they want to sell the property and buyers who make realtors show them bunch of properties without committing to any of them.
Outside the Control of any Principal Parties
Transactions may go wrong even if both parties did everything right. There are various reasons why this can occur. For instance, a land transaction may have already been concluded and after a few days, the government acquired the land due to a major construction project.
With no end in sight to the public health and economic crises resulting from the COVID-19 pandemic, businesses across all sectors of the economy continue to grapple with the fallout. Those who own and manage commercial real estate face unique obstacles, and must plan strategically and act aggressively in order to navigate the challenges they face.
If you own and/or manage commercial real estate, there are a number of issues to consider and actions to implement that will help bolster the health and longevity of your business. The path forward may be rocky, but as with past cyclical downturns, there are steps you can take to protect yourself as well as opportunities for those who emerge on the other side.
What Has Led Us Here?
COVID-19 has sent shockwaves through commercial real estate markets worldwide. In the United States, various state executive orders forced the closure of many consumer-facing businesses and the mass exodus of white-collar workers from office space in favor of working from home. While many presumed during the early days of the pandemic that the disruption would be relatively short-lived, those hopes were misplaced.
For example, in Michigan, most restaurants are still severely restricted in terms of indoor dining capacity, event venues remain shuttered, and significant numbers of office workers remain at home. Nationally, many large employers such as Google, Microsoft and JPMorgan Chase have announced their intentions to allow workers to continue working from home, in some cases, well into 2021. Investments in communication technology have helped make remote work possible, and this ?grand experiment? in distributed work has many businesses fundamentally rethinking how much square footage they need in the future.
Working from home, of course, is not the only catalyst of change in commercial real estate. The shift from physical retail toward online shopping has negatively impacted mall traffic and brick-and-mortar stores. The lack of business and leisure travel has hit hotels.
All of these events?and others?have conspired to make 2020 a particularly challenging year for commercial real estate. Some estimates have shown that commercial real estate investment fell nearly 30% globally in the first six months of 2020 compared to the year-earlier period. However, consistent with the old adage that ?opportunity lies in every crisis,? there are bright spots to be optimistic about. For instance, demand for warehousing, distribution, and logistics centers is growing, fueled by the e-commerce boom.
Ongoing Issues of Importance for Commercial Real Estate.
There are myriad issues that commercial real estate owners and/or managers must continue to grapple with moving forward. The challenges ahead include a blend of business and legal issues that require equal parts strategic planning and risk mitigation, and in many instances will call for the support and counsel of trusted advisors. A proactive, rather than a wait-and-see, approach is critical to strengthen your business.
Dealing with Tenants.
Most commercial landlords are dealing with tenants who are slow-paying rent or not paying altogether. At the beginning of the COVID-19 crisis, in anticipation of a relatively short-term business disruption, many landlords and tenants engaged in discussions and struck agreements for rent accommodations that were intended to help tenants preserve cash flow, and allow landlords to plan accordingly, until business picked back up over the summer. As the crisis has dragged on, those short-term lease modifications need to be revisited; unfortunately, many parties are avoiding having these difficult conversations. Therefore, its critical that landlords take it upon themselves, either directly or through legal counsel, to re-engage with their tenants and address the issue head on.
When engaging with tenants, insist on an honest, open-book evaluation. Getting all the facts on the table is the only way to craft effective solutions, be they further lease modifications or a more creative approach. For example, in the course of my negotiations with a tenant who had a strong business but no cash flow or borrowing capacity, we negotiated the sale of the business to the landlord. This was a win-win situation, allowing the tenant to get out from under debt and giving my client an asset they could sustain.
Unfortunately, despite best efforts, sometimes it is clear that there is no path forward. In such instances, its incumbent on landlords to take aggressive action. Once the facts are clear, there is no benefit from delay and procrastination, which will result in landlords potentially getting stuck behind other creditors who may take more decisive action to collect debts they are owed.
Regardless of the path forward, any agreement struck with a tenant should be documented in writing and reviewed by legal counsel.
Dealing with Lenders.
Just as tenants have financial obligations to landlords, most commercial real estate owners have obligations to lenders. The fact that many commercial real estate owners are dealing with slow-pay or no-pay tenants means that they may be struggling to keep up with their own debt obligations. As a result, they may need to restructure the loans secured by their properties in order to avoid loan defaults, foreclosures and the loss of their properties.
While the constraints of this article do not allow for a full discussion of all of the issues involved in a commercial loan workout, there are several important principles to keep in mind when dealing with lenders.
First, understand your lenders perspective. Lenders are reevaluating their lending models based on the fallout from COVID-19. They are repricing loans based on new expectations regarding occupancy levels and borrower risks which have changed since early 2020. At the same time, most lenders do not want to be in the business of owning commercial real estate, so while they may drive a harder bargain, most are willing to engage in reasonable negotiations with borrowers to avoid foreclosure.
Second, be fully prepared. Understand the root causes of distress and be ready to present a complete picture of your business to the lender. Your objective should be to fully address all issues so that any loan modification or restructuring can comprehensively address outstanding issues. If an agreement cannot be reached, know what your other options are with other lenders or investors.
Third, engage legal counsel. When dealing with a sophisticated commercial lender, its imperative to have experienced legal counsel on your side?you can be sure the lender will be similarly represented. You may only get one shot at striking an agreement that allows you to remain in control of your asset(s), so be sure to take all precautions to protect your interests.
Dealing with Executive Orders. The COVID-19 pandemic has created many unprecedented challenges related to the ownership and management of commercial real estate, and one of the most significant has been the impact of the flurry of executive orders intended to protect the health and safety of citizens. For commercial real estate owners and managers, these executive orders have created a great deal of confusion and forced them to incur significant costs.
One of the main reasons the executive orders, such as those that have affected foreclosures, limitations on business operations, sanitation and social distancing, have been problematic is that they are broadly applicable and therefore are often ambiguous. For example, defining an ?indoor? space can lead to a dozen different interpretations with the wrong ones opening the offender up to financial or criminal sanction. Accordingly, its important to work with legal counsel in order to try as best as possible to bring clarity to the ambiguities and remain compliant.
Further complicating the matter, Michigans Supreme Court recently held that Gov. Whitmer did not have authority after April 30, 2020, to issue or renew any executive orders related to the COVID-19 pandemic (more information here). Accordingly, while next steps and timing are still unclear, landlords should prepare for a mishmash of local orders, imposing varying obligations, until the Legislature sets forth a particular plan which the Governor will adopt.
Conclusion
There is no escaping the challenges commercial real estate owners and/or managers will face over the coming months. Those who succeed (or, in particularly hard hit sectors, merely survive) will pivot in the moment and plan strategically for the future.
Buying a home isnt just a simple purchase; its also a legal transfer of a property from one entity to another. Because the legal side of this transaction can be so complex, sometimes it makes sense (or is even required) for home buyers or sellers to enlist an attorney who can look out for their best interests.
While you?ll likely already be dealing with a myriad of costs as you work to close on your house, and probably arent keen to add another, having a lawyer on your side can be an expense that ends up paying for itself.
What Is A Real Estate Attorney?
A real estate attorney is someone who is licensed to practice real estate law, meaning they have the knowledge and experience to advise parties involved in a real estate transaction, such as a home sale.
What Does A Real Estate Attorney Do?
Real estate attorneys know how to and are legally authorized to prepare and review documents and contracts related to the sale and purchase of a home. In some cases, a real estate attorney is also the person who?ll be in charge of your closing.
In a home purchase transaction, both the buyer and seller can hire an attorney to represent their interests during the process. Or, in the case where an attorney is overseeing a closing where the home is being purchased with a mortgage loan, the attorney may actually represent the mortgage lender.
When Do I Need A Real Estate Attorney?
Depending on your state and localitys laws and the exact nature of the transaction, you may need to enlist the services of a real estate attorney (and have the cost included in your closing costs), whether you like it or not.
If you end up needing an attorney, whether youve decided you want one or your state or lender requires it, there are a few different points during the home buying process where they can come in and provide assistance. This can include drafting and finalizing purchase contracts, writing amendments to a standard contract utilized by your real estate agent, completing a title search or conducting the closing.
Here are a few reasons you might need or want an attorney to be part of your home buying team:
State or lender requirement: Every state has slightly different laws regarding real estate transactions, and some states consider certain actions that are part of the process to be ?practicing law. These regulations are often meant to prevent real estate agents from acting in a legal capacity that they arent trained or licensed for. For example, in many areas only a licensed attorney can put together legal documents related to the sale of a home, because they consider that to be within the realm of the practice of law. (However, in many areas, real estate agents now use standardized form contracts for home purchases that non-lawyers can legally fill out on their own.) Certain states may also consider performing a home closing to be a practice of law, and as such, an attorney may be required to be present during closing. If youre getting a mortgage with Rocket Mortgage? by Quicken Loans?, we require you to have an attorney conduct your closing if the subject property is located in any of the following states: Connecticut, Delaware, Georgia, Massachusetts, New York, South Carolina or West Virginia.
Contractual issues with the purchase: If your home purchase involves any out-of-the-ordinary elements that could complicate your purchase contract, a good real estate attorney can make sure that all your contracts take into account the complexity of your situation as well as help you out if contractual issues arise during the process.
Peace of mind: If you just have a feeling that something could go wrong or you want to be sure all your bases are covered, having a lawyer on your side can help give you the confidence that even if the transaction does go awry, you have a legal professional who is looking out for your best interests and can help you work through a tricky situation.
How Much Does A Real Estate Attorney Cost?
How much you?ll spend paying your real estate attorney (or attorneys) will depend on what services theyve provided for you and who is responsible for that particular closing cost. If your mortgage lender requires an attorney to be present at closing, whether the buyer or seller covers the cost of the closing attorney will depend on how your contract was negotiated.
If you want your own attorney in addition to the one required by your lender, you?ll also pay for any services they provide you. How and how much a real estate attorney charges will vary, but here are some basic ranges to give you an idea of what you?ll spend:
Fixed hourly rate: A real estate attorney who charges an hourly rate may charge $150 ? $350 per hour, but this can vary a lot depending on how experienced the attorney is and what area youre in.
Fixed rates for specific services: They may also charge a flat fee for the particular services they provide. For example, a real estate attorney might charge $500 ? $1,500 to conduct a home closing. Their fees may also depend on the sale price of the property in question.
How Can I Find A Real Estate Attorney Near Me?
Since buying a home is such a large, important purchase, you want to make sure that the professionals you work with know what theyre talking about and are good at what they do. If you arent sure where to look to find a reputable real estate attorney, here are some places to start:
Ask for recommendations from friends and family: If someone in your social circle recently purchased or sold a home and had an attorney, you might consider asking them who they used and what their experience was like.
Utilize your states Bar association directory: Your state Bar associations website can help you locate lawyers in your area who practice real estate law. Use the American Bar Associations directory to help you find your states website.
Use an online legal review site: There are many online review websites that will give you information on attorneys in your area, including their specialties, fee structures and any reviews left by former clients.
Eviction protections will end on Dec. 31, leaving as many as 19 million people at risk
A nationwide ban on evictions will expire Dec. 31 with no replacement in sight. Even still, landlords are finding creative ways to get around it.
Dale Smith, Shelby Brown
The national eviction moratorium is running out.
Starting Jan. 1, 2021, landlords will once again be able to legally evict tenants for failure to pay rent. Dec. 31 is the last day of protection from evictions and from a handful of other coronavirus relief measures that will expire on Dec. 31 if there’s no new stimulus bill or executive action to renew them. The National Low Income Housing Coalition estimates as many as 19 million people in 6.7 million households are at risk of being evicted when the calendar flips to 2021.
In the meantime, even the protections that are currently in force are not necessarily enough to save everyone from being turned out. Some judges have refused to accept the current moratorium and allowed evictions to proceed anyway. In other situations, landlords have figured out loopholes by filing evictions for infractions other than not paying rent, like barking dogs or smoking, or by not renewing tenants’ leases.
It doesn’t help that the current eviction ban requires renters who’ve fallen behind on their rent to submit a signed declaration form to their landlord stating they’ve lost income due to the coronavirus pandemic and have made an effort to look for financial assistance, as well as a few other conditions. (This part is critical, more below.) Landlords can challenge the truthfulness and accuracy of those statements and some landlords’ lawyers have gone so far as to challenge tenants with perjury charges.
Some states and cities continue to have their own eviction bans on the books ( here’s an up-to-date list). A few offer more protection than the federal eviction moratorium, but many have let their laws expire. We’ll dig into the national eviction moratorium to unpack who is covered, what might not be covered and what you need to do now if you’re worried about getting evicted. Plus, we’ll take a look at what other resources and options are available to help you stay in your home. This story was recently updated.
If you’re worried about making rent, you aren’t alone.
What the national eviction ban does and doesn’t protect
The current national eviction moratorium was ordered by the Centers for Disease Control and Prevention using a 1944 public health law intended to curb the spread of a pandemic. Because homelessness can increase the spread of COVID-19, the order halts evictions across the US for anyone who has lost income due to the pandemic and has fallen behind on rent.
The federal mandate doesn’t prohibit late fees (although some local ordinances do), nor does it let tenants off the hook for any back rent they owe. It also doesn’t establish any kind of financial assistance fund to help renters get caught up, a safeguard some say is critical to preventing a massive wave of evictions when the ban eventually lifts. (Many cities and states, however, have set aside money to help with rent — keep reading for how to find assistance where you live.)
The order only halts evictions for not paying rent. Lease violations for other infractions — criminal conduct, becoming a nuisance, etc. — are still enforceable with eviction. And it only protects renters who earn less than $99,000 per year or $198,000 for joint filers. Finally, renters must print and sign an affidavit declaring their eligibility for protections (the next section breaks down those requirements).
For most people, the payment they make on their home is the biggest bill they pay each month, whether they rent or own.
Qualifying for the eviction moratorium requires paperwork
The CDC’s order requires renters facing eviction to meet five requirements, which they must declare, under penalty of perjury, by copying or printing, signing and delivering an affidavit to their landlord.
The five qualifications are, in brief:
You’ve used “best efforts” to look for financial assistance.
You don’t expect to earn more than $99,000 in 2020 (or no more than $198,000 if filing jointly).
You can’t pay your full rent amount because of lost income or “extraordinary” medical expenses.
You’ve tried to pay as much of your rent in as timely a manner as you can.
If evicted, you would likely become homeless and have to live in a shelter or some other crowded place.
It’s not yet entirely clear what happens if your landlord chooses to challenge or deny your declaration. The New York Times spoke to both legal experts and government officials who helped draft the order, and they suggest it could be up to a housing court to decide whether you qualify or not. If your landlord challenges your request, they recommend providing “‘reasonable’ specifics to prove your eligibility.” That could include bank statements and other documents.
It’s still unclear how much cash Congress plans to put in American’s pockets with a second stimulus bill.
What to dhttps://kcrealestatelawyer.com/wp-admin/post-new.php#o if you’re facing financial hardship today
If you’re in need of immediate shelter or emergency housing, the federal Department of Housing and Urban Development maintains a state-by-state list of housing organizations in your area. Select your state from the drop-down menu for a list of resources near you.
In response to the coronavirus pandemic, many stg and cities have expanded their available financial assistance for those who are struggling to pay rent. To see what programs might be available near you, find your state on this list of rent relief programs gfmgtained by the National Low Income Housing Association.
Nonprofit 211.org connects those in need of help with essential community services in their area and has a specific portal for pandemic assistance. If you’re having trouble with your food budget or paying your housing bills, you can use 211.org’s online search tool or dial 211 on your phone to talk to someone who can try to help.
JustShelter.org is a nonprofit that puts tenants facing evdaDVASGAFGASGGASDFGF
sh local organizations that can help them to remain in their homes or, in worst-case scenarios, find emergency housing.
The online legal services chatbot at DoNotPay.com has a coronavirus financial relief tool that it says will identify which of the laws, ordinances and measures covering rent and evictions apply to you based on your location.
If you’re seriously delinquent or know you will be soon, you may want to consult a lawyer to better understand how laws in your area apply to your situation. Legal Aid provides attorneys free of charge to qualified clients who need help with civil matters such as evictions. You can locate the nearest Legal Aid office using this search tool.
If you can no longer afford rent on your current home, relocation might be an option. Average rental prices have declined across the US since February, according to an August report by Zillow. Apps like Zillow, Trulia and Zumper can help you find something more affordable. Just be aware that you may still be held responsible for any back rent you currently owe as well as any rent that accrues between now and the end of your lease (if you have one), whether or not you vacate.
Although almost all Washington lawmakers agree there should be another round of direct payments (aka “stimulus checks”), Congress has yet to pass a bill authorizing the payments.
Typically, its the husband asking and he is initiating the divorce. He is worried about giving up his interest in the house, and the right to return.
From a strictly legal perspective, those fears are unfounded. If the home is jointly owned, each has an equal right to the house, an equal stake in its value. Similarly, the person moving out has the right to move back in, should that be necessary, even if the other spouse objects.
For a home owned solely by one spouse, the non-owning spouse has the same right to live in the home, or return to it, as the other. The non-owner cannot be evicted while they are married to the owner, except where an ?order of protection? has been issued. (Whether an owner or not, an abusive spouse can be evicted by the court with an ?order of protection?.)
However, whether you should leave the family home has several practical considerations. First, can you afford to maintain separate households? Even the most spartan apartment will likely cost several hundred dollars a month, plus utilities, and require minimal furnishing, which you will have to purchase or rent, if they cannot be sourced from your existing possessions. (?Abandoned? spouses arent always generous when it comes to sharing household furnishings!)
Couples that are able to work out a tolerable coexistence with separate bedrooms, shared but separate child care schedules, and even separate eating arrangements can save themselves thousands of dollars. In the process, these small steps in mutual accommodation may lead to greater benefits down the road through less contentious (and less expensive) negotiations dividing up their property and working out child custody and support plans.
Of course, tolerable coexistence? and ?mutual accommodation? are not always associated with couples in a divorce. More often, the chance to get away from each other and the constant bickering justifies the extra expense. The time apart can relieve the tension and anger sufficiently to bring about a more constructive resolution to the marriage, while occasionally providing a few couples Ive known the opportunity to reconsider whether a divorce is what they really want.
Besides financial and quality-of-life issues, the vacating spouse should keep other realities? in mind. The person remaining in the house often comes to expect that the home will be awarded to them, even when there is no equitable basis for doing that. With ?locked-in?, unrealistic expectations, the inevitable result is a more adversarial proceeding and the possibility the judge will order the home sold as the only way to fairly divide the property. Even so, judges are loath to separate children from their homes?whomever is awarded primary physical custody of the children will likely receive the house as well.
Lastly, before ?hitting the road?, the departing spouse should bear in mind that his/her most prized possessions will be left in the care of their spouse. If you leave on less than amicable terms, you would be wise to take with you all that is most dear. Otherwise, you may face the predicament of a husband who left his wife to move in with his girlfriend. Two days later, his wife telephoned demanding that he retrieve the rest of his clothing. Upon arriving at his former residence, he found several boxes stacked in the driveway, marked suits?, ?pants?, shirts?, etc. Surprised that his wife packed and cataloged his belongings, he was horrified to learn that she had also taken a scissors to every stitch he owned!
Despite federal ban, renters still being evicted amid virus
By MICHAEL CASEY
November 29, 2020
The 46-year-old, who was hospitalized in August for the coronavirus and cant work due to mental health issues, said she fell behind on her $500-a-month rent because she needed the money to pay for food. When she was evicted in October, Mormon said she was unaware of President Donald Trumps directive, implemented in September by the Centers for Disease Control and Prevention, that broadly prevents evictions through the end of 2020.
?It was difficult. I had to leave all my stuff,? said Mormon, who has been staying with friends and relatives since her eviction. ?I dont have no furniture, no nothing.
With most state and local eviction bans expired, the nationwide directive was seen as the best hope to prevent more than 23 million renters from being evicted amid a stalemate in Congress over tens of billions of dollars in rental assistance. It was also billed as a way to fight the coronavirus, with studies showing evictions can spread the virus and lead to an increase in infections.
The CDC order has averted a wave of evictions, housing advocates said, but tenants are increasingly falling through the cracks.
Some judges in North Carolina and Missouri refused to accept the directive, tenant advocates said. The order has been applied inconsistently, and some tenants, who had no legal representation, knew nothing about it. Landlords in several states also unsuccessfully sued to scrap the order, arguing it was causing them financial hardship and infringing on their property rights.
?Right now, we are seeing variations in the way courts are applying the CDC order, and we are also seeing a lack of knowledge among tenants and property owners,? said Emily Benfer, a law professor at Wake Forest University and the chair of the American Bar Associations COVID-19 task force committee on evictions. ?Advocates are working overtime to inform tenants of their rights under the CDC order and, in many places, evictions are going forward.
In Fremont, Nebraska, Dana Imus went to court this month to avoid getting evicted for falling behind on rent. The 41-year-old mother of four lost her job as a forklift operator in March due to the pandemic and hasnt been able to get another one ? partly due to her car breaking down.
When she presented a declaration to her landlord that she qualified for the federal moratorium, she said he told her wrongly that Nebraska didnt recognize it. She also tried to pay her landlord $400 of the $1,000 rent for October, but he refused. She used the money, instead, for a car payment and now has no money for rent.
?Its been a struggle,? she said. ?Its stressful. But I trust God so, I mean, I?m not too worried about it. I know I am not going to be evicted because I trust God.
Those who didnt know about the CDC moratorium include Charlene Wojtowicz, who thought she had avoided eviction from her two-bedroom house in Cleveland after a nonprofit paid three months of her back rent and her landlord withdrew his lawsuit. This week, the landlord demanded the 33-year-old mother of three pay the $455 she owes for November.
?I?m worried that me and my kids will be out on the street,? said Wojtowicz, who lost a new housekeeping job after getting COVID-19 this summer. ?I?m a single mother with three children trying my hardest. Its not like I dont want to pay this man.
Eviction filings have begun creeping up in several states, with the Eviction Lab at Princeton finding cities in South Carolina, Ohio, Florida and Virginia saw big jumps during October. A factor, tenant advocates said, was the CDCs guidance related to the order last month that allows landlords to start eviction proceedings.
?Its pretty alarming that lots of evictions are still, at least, being filed,? said Eric Dunn, director of litigation at the National Housing Law Project in Richmond, Virginia. The act of filing an eviction, he said, can prompt tenants to move out ahead of a hearing over fears that an eviction record would prevent them from renting another apartment.
?Because tenants often value their ability to obtain other rental housing over remaining in one specific property, the fact that such cases are being filed likely has a chilling effect on tenants who would otherwise assert the moratorium,? he said. ?Tenants who receive eviction notices will move out to avoid the creation of an eviction record, rather than stay in their homes.
The CDC last month also said landlords have the right to challenge the veracity of tenants? declarations that they qualify for the moratorium. A false claim could result in criminal charges for perjury, and lawyers for landlords have taken advantage of that language to challenge tenants in court.
To be eligible for protection, renters must earn $198,000 or less for couples filing jointly, or $99,000 for single filers; demonstrate that theyve sought government help to pay the rent; declare that they cant pay because of COVID-19 hardships; and affirm they are likely to become homeless if evicted.
?We now have to fight this battle every time we go into court, where its not enough that the tenant provides the declaration,? said Hannah Adams, an attorney for Southeast Louisiana Legal Services. ?Now they have to explain where every penny of their monthly check is going or even if they are getting a check. It creates a higher burden for tenants than was intended by the original order.
Also driving evictions is that the order only applies to nonpayment of rent.
As a result, landlords are increasingly trying to sidestep the order by evicting tenants for minor lease violations like excessive noise or trash, or they are simply not extending leases, tenant advocates said.
That is what is happening to Imus, according to Caitlin Cedfeldt, a staff attorney at Legal Aid of Nebraska. Even before a judge ruled Monday that she qualified for the federal moratorium, her landlord gave her a new notice to vacate, alleging criminal behavior at her residence.
?The landlord lost today, but I think they are going to keep coming after her with notices like these in an attempt to circumvent the federal order,? Cedfeldt said by email.
The other challenge is that any legal victory could be short-lived. The CDC order is set to expire Dec. 31, just when a spike in virus cases threatens to further undermine the economy. Many tenants owe months of back rent. The global investment bank and advisory firm Stout estimates that by January, renters will owe as much as $34 billion.
It is unclear if the moratorium will be extended as tenant advocates have demanded. In addition, a coronavirus relief package that could include tens of billions of dollars for rent and mortgage assistance appears to be going nowhere. State and local rental assistance programs provided some relief, but advocates say the funds fall far short of what is needed.
Advocates already are pressing President-elect Joe Biden to sign a broad, new national eviction moratorium on his first day in office. They want Biden to work with Congress in his first 100 days to pass a relief package that includes at least $100 billion in emergency assistance for renters and landlords and resources for the homeless.
?By the time President-elect Biden takes office on Jan. 20, we may be in the midst of a historic eviction crisis in our country if no action is taken between now and then,? said Diane Yentel, president of the National Low-Income Housing Coalition
The Real Estate Settlement Procedures Act (RESPA) provides consumers with improved disclosures of settlement costs and to reduce the costs of closing by the elimination of referral fees and kickbacks.
RESPA was signed into law in December 1974 and became effective on June 20, 1975. The law has gone through a number of changes and amendments since then, all with the intent of informing consumers of their settlement costs and prohibiting kickbacks that can increase the cost of obtaining a mortgage.
RESPA covers loans secured with a mortgage placed on one-to-four family residential properties. Originally enforced by the U.S. Department of Housing & Urban Development (HUD), RESPA enforcement responsibilities were assumed by the Consumer Financial Protection Bureau (CFPB) when it was created in 2011.
RESPA prohibits service providers from giving anything of value in exchange for referrals of business. RESPA violations can carry serious consequences. Take the following Dos and Donts as examples of what you can and cannot do to comply with RESPA:
Do:
RESPA allows a title agent to pay for your dinner when business is discussed, provided that such dinners are not a regular occurrence.
RESPA allows a home inspection company to sponsor association events when representatives from that company also attend and to post a sign identifying its services and sponsorship of the event.
RESPA allows a lender to pay you fair market value to rent a desk, copy machine and phone line in your office to pre-qualify applicants.
RESPA allows a title agent to provide, during an open house, a modest food tray in connection with the title companys marketing information indicating that the refreshments are sponsored by the title company.
RESPA allows you to jointly advertise with a mortgage broker if you pay a share of the costs in proportion with your prominence in the advertisements.
RESPA allows a hazard insurance company to give you marketing materials such as notepads, pens and desk blotters which promote the hazard insurance companys name.
Dont:
RESPA prohibits acceptance of payment from a mortgage lender just for taking a loan application.
RESPA prohibits accepting gifts from mortgage brokers, such as paying your greens fees.
RESPA prohibits a mortgage broker or title company from paying for your tickets to a sporting event.
RESPA prohibits acceptance of contributions from a title company to offset the cost of a real estate agents promotional event except to the extent of the value of any marketing done by the title company during that event.
RESPA prohibits a title company from regularly providing dinner and reception for real estate agents.
RESPA prohibits acceptance of a dinner paid for by a home inspector who doesnt attend the dinner to market his/her services to you.
2015 Missouri Revised Statutes TITLE XXXVI STATUTORY ACTIONS AND TORTS (521-538) Chapter 535 Landlord-Tenant Actions Section 535.300 Security deposits, limitation–return of deposit or notice of damages, when–withholding deposit, when–tenant’s right to damages–security deposit defined. Universal Citation: MO Rev Stat ? 535.300 (2015) 535.300.
1. A landlord may not demand or receive a security deposit in excess of two months’ rent.
2. Within thirty days after the date of termination of the tenancy, the landlord shall:
(1) Return the full amount of the security deposit; or
(2) Furnish to the tenant a written itemized list of the damages for which the security deposit or any portion thereof is withheld, along with the balance of the security deposit. The landlord shall have complied with this subsection by mailing such statement and any payment to the last known address of the tenant.
3. The landlord may withhold from the security deposit only such amounts as are reasonably necessary for the following reasons:
(1) To remedy a tenant’s default in the payment of rent due to the landlord, pursuant to the rental agreement;
(2) To restore the dwelling unit to its condition at the commencement of the tenancy, ordinary wear and tear excepted; or
(3) To compensate the landlord for actual damages sustained as a result of the tenant’s failure to give adequate notice to terminate the tenancy pursuant to law or the rental agreement; provided that the landlord makes reasonable efforts to mitigate damages.
4. The landlord shall give the tenant or his representative reasonable notice in writing at his last known address or in person of the date and time when the landlord will inspect the dwelling unit following the termination of the rental agreement to determine the amount of the security deposit to be withheld, and the inspection shall be held at a reasonable time. The tenant shall have the right to be present at the inspection of the dwelling unit at the time and date scheduled by the landlord.
5. If the landlord wrongfully withholds all or any portion of the security deposit in violation of this section, the tenant shall recover as damages not more than twice the amount wrongfully withheld.
6. Nothing in this section shall be construed to limit the right of the landlord to recover actual damages in excess of the security deposit, or to permit a tenant to apply or deduct any portion of the security deposit at any time in lieu of payment of rent.
7. As used in this section, the term “security deposit” means any deposit of money or property, however denominated, which is furnished by a tenant to a landlord to secure the performance of any part of the rental agreement, including damages to the dwelling unit. This term does not include any money or property denominated as a deposit for a pet on the premises.
(L. 1983 H.B. 175 1)
(2007) Subsection 5 of section allowing award of twice the security deposit for wrongful failure to return deposit does not apply to tenants of commercial property. PDQ Tower Services, Inc. v. Adams, 213 S.W.3d 697 (Mo.App.W.D.).
Colorado: Common law marriage contracted on or after Sept. 1, 2006, is valid if, at the time the marriage was entered into, both parties are 18 years or older, and the marriage is not prohibited by other law (Colo. Stat. ?14-2-109.5)
Iowa: Common law marriage for purposes of the Support of Dependents Chapter (Iowa Code ?252A.3) Otherwise it is not explicitly prohibited (Iowa Code ?595.1A)
Kansas: Common law marriage will be recognized if the parties are 18 or older and for purposes of the Divorce and Maintenance Article, proof of common law marriage is allowed as evidence of marriage of the parties (Kan. Stat. ?23-2502; Kan. Stat. ?23-2714)
Montana: Not strictly prohibited, they are not invalidated by the Marriage Chapter (Mont. Stat. ?40-1-403)
New Hampshire: Common Law Marriage: “persons cohabiting and acknowledging each other as husband and wife, and generally reputed to be such, for the period of 3 years, and until the decease of one of them, shall thereafter be deemed to have been legally married.” (N.H. Stat. ?457:39)
South Carolina: allows for marriages without a valid license (S.C. Stat. ?20-1-360)
Texas: Common Law Marriage in specific circumstances (Tex. Family Law ?1.101; Tex. Family Law ?2.401-2.402)
Utah: Utah Stat. ?30-1-4.5
Not all state statutes expressly allow for common law marriages. In Rhode Island, case law recognizes common law marriages. Oklahoma’s statute requires couples to get a marriage license;
however case law has upheld common law marriages in the state.
States Previously Allowing Common Law Marriage
States that did allow, and will still recognize as valid, common law marriages entered into prior to the date it was abolished.
Pennsylvania: No common law contracted after Jan. 1, 2005 (Pa. Cons. Stat. Ann. tit. 23, ? 1103)
Ohio: No common law if entered into on or after Oct. 10, 1991 (Ohio Stat ? 3105.12)
Indiana: No common law if entered into after Jan. 1, 1958 (Ind. Code ?31-11-8-5)
Georgia: No common law after Jan. 1, 1997, however, common law marriages entered into prior to that date will be recognized by the state. (Ga. Stat. ? 19-3-1.1)
Florida: No common law entered into after Jan. 1, 1968 (Fla. Stat. ? 741.211)
Alabama: No common law after Jan. 1, 2017, however, common law marriages entered into prior to that date will be recognized by the state. (Ala. Code ? 30-1-20)
MISSOURI IS NOT A COMMON LAW STATE. KANSAS IS A COMMON LAW STATE. IF A COUPLE IS MARRIED UNDER COMMON LAW IN ANOTHER STATE, MISSOURI MUST RECOGNIZE THAT UNDER THE FULL FAITH AND CREDIT CLAUSE OF THE UNITED STATES CONSTITUTION. IF A COMMON LAW MARRIAGE IS FORMED, A DIVORCE PROCEEDING MUST BE INITIATED TO UNDO IT. THIS IS WHAT A NON-MARITAL COHABITATION AGREEMENT IS DESIGNED TO PREVENT.
What rights do unmarried couples have?
Generally, unmarried cohabitants do not enjoy the same rights as married individuals, particularly with respect to property acquired during a relationship. Marital property laws and other family laws related to marriage do not apply to unmarried couples, even in long-term relationships. The characterization of property acquired by unmarried cohabitants is less clear than that of married couples whose ownership of property is governed by marital and community property laws. Some property acquired by unmarried couples may be owned jointly, but it may be difficult to divide such property when the relationship ends. There is no obligation of financial support attached to a couple who cohabits, absent an agreement to the contrary. If you are financially dependent on a romantic partner and the relationship ends, the effects of the breakup can be much harsher.
How is cohabitation defined?
Cohabitation is generally defined as two people living together as if a married couple. State laws vary in defining cohabitation. Some states have statutes which make cohabitation a criminal offense under adultery laws. Under one state’s law, cohabitation means “regularly residing with an adult of the same or opposite sex, if the parties hold themselves out as a couple, and regardless of whether the relationship confers a financial benefit on the party receiving alimony. Proof of sexual relations is admissible but not required to prove cohabitation.” Another state statute defines cohabitation as “the dwelling together continuously and habitually of a man and a woman who are in a private conjugal relationship not solemnized as a marriage according to law, or not necessarily meeting all the standards of a common-law marriage.” Yet another state, Georgia, defines cohabitation as “dwelling together continuously and openly in a meretricious relationship with another person, regardless of the sex of the other person.
Is it possible for unmarried couple to establish rights as a couple?
Living together, or cohabitation, in a non-marital relationship does not automatically entitle either party to acquire any rights in the property of the other party acquired during the period of cohabitation. However, adults who voluntarily live together and engage in sexual relations may enter into a contract to establish the respective rights and duties of the parties with respect to their earnings and the property acquired from their earnings during the nonmarital relationship. While parties to a nonmarital cohabitation agreement cannot lawfully contract to pay for the performance of sexual services, they may agree to pool their earnings and hold all property acquired during the relationship separately, jointly or to be governed by community property laws. They may also agree to pool only part of their earnings and property, form a partnership or joint venture or joint enterprise, or hold property as joint tenants or tenants in common, or agree to any other arrangement.
Other legal issues that may be affect cohabiting couples include estate planning and medical care. Generally, someone who cohabits with another is not considered an heir under the law or have the same rights to make medical care decisions in the same manner as a spouse. Therefore, unmarried cohabitants may consider estate planning and power of attorneys in addition to having a nonmarital agreement.
In some cases of people who formerly cohabited, courts have found a trust created in property of one person who cohabits with another, whereby the property is deemed held for the benefit of their domestic partner. When there is no formal trust agreement, a resulting trust may still be found under certain circumstances in order to enforce agreements regarding the property and income of domestic partners. If there is evidence that the parties intended to create a trust, but the formalities of a trust are lacking, the court may declare a resulting trust exists. The court may also declare that a constructive trust exists, which is essentially a legal fiction designed to avoid injustice and prevent giving an unfair advantage to one of the parties. This may be based on the contributions made by one partner to the property of the other. Each case is decided on its own facts, taking all circumstances.
Selling a house can be expensive, complex and time-consuming, so its a huge relief to everyone involved when a deal is struck and the sale closes. But what if the seller wants to back out? Is it legal? What are the buyers options in that case?
Its very, very common? for home sellers to renege on buyers, especially in a hot real estate market, says Zachary D. Schorr, lead attorney at Los Angeles-based Schorr Law, APC, which handles real estate litigation. Even when the seller doesnt have a clear legal right to renege on a deal, it can still happen.
?I do these cases all the time, but its generally a very tough case for the seller and typically you would rather be on the buyer side,? Schorr says. ?Its easier for a buyer to cancel and hard for a seller to get away without a penalty.
Buyers have the upper hand because most contracts for a home purchase contain provisions that protect them and keep the purchase process moving along. Sellers who want to renege have an uphill battle unless a buyer ?fails to perform? by missing a deposit or closing deadline, for example.
A word of warning to sellers: ?If youre selling a property, you shouldnt enter into a contract unless you are going to sell it,? Schorr says. Theres not much room to have doubt or second thoughts. The buyer has ways out, but the seller really doesnt.
Why do home sellers renege on sales contracts?
Sellers may have a variety of reasons for trying to back out of an accepted purchase agreement. Among them:
The seller gets a higher offer from another buyer.
The seller has been unable to find a suitable replacement home.
The seller loses a job or a family member dies, making it financially difficult to move.
The seller has emotional ties to the house and cant let go.
There is a disagreement within the sellers family about leaving the house.
The property appraises for more than what the buyer has offered.
Why its crucial to get everything in writing
The first thing that both home sellers and buyers should know is that all purchase offers, counteroffers and acceptances should be in writing and signed by each party agreeing to the contract. Typically, when the seller accepts the buying partys signed offer or counteroffer and communicates that acceptance to the buyer, a binding agreement has been reached.
?Until there is a contract, there is no obligation on behalf of the (home) owner,? Schorr says. ?An oral agreement is generally not binding. A contract to sell real property is required in writing.
Backing out of a home sale can have costly consequences
A home seller who backs out of a purchase contract can be sued for breach of contract. A judge could order the seller to sign over a deed and complete the sale anyway. ?The buyer could sue for damages, but usually, they sue for the property,? Schorr says.
A seller often has to pay the buyers legal fees, as well as his own, says Schorr. ?That could be a harsh penalty.
The seller also may be ordered to:
Return the buyers good faith deposit, plus interest;
Pay back fees the buyer shelled out for inspections and appraisals;
Pay for lost equity the buyer may have realized from the home;
Pay any other reasonable expenses the buyer incurred;
Reimburse the listing agent for the lost commission and marketing costs.
A seller who wants to avoid a court fight could offer to pay the buyer enough to make them whole and hope they will agree to exit the deal.
Since breach of contract is a civil matter, a seller need not worry about jail time, however. ?There is generally no criminal liability for breaching a contract,? Schorr says.
How can the home seller avoid penalties?
Home sellers can give themselves an ?out? by adding contingencies to the sales contract ? in other words, make the sale contingent upon certain conditions. For example, a seller can make the sale contingent upon having a contract to buy another house, so he has a place to move to. Or the seller can give himself contractual latitude by adding a time frame or deadline for all purchase offers.
?Generally, (a seller) cant cancel without cause,? Schorr says. ?You could build in some contingency, but absent that, you had better be committed to the sale. There has to be a contingency or the buyer failed to perform.
One way in which buyers fail to perform is not being able to get a mortgage. ?If, for some reason, the buyers lender does not appraise the home at a value that would secure financing, the seller is not required to negotiate and can cancel the contract for the buyers lack of performance in terms of securing financing,? says Susan Chong, founder of Denver-based Iconique Real Estate, a brokerage in the luxury market.
A remorseful seller who wants to back out after a sale has closed has no chance of succeeding since the title, money and everything else have been transferred at closing and they no longer own the property.
?If the seller has a reason that they still need to occupy the home after the closing, they can attempt to lease back the property from the buyer,? says Chong.
What are homebuyers options when the buyer reneges?
A buyer that has a purchase contract with a seller who wants to back out should consult a real estate attorney. If the buyer wants to take it to court, they can sue the seller for breach of contract. Legal redress against a seller can be expensive and time-consuming, however, and may not result in a satisfying conclusion.
?A prudent move for the buyer would be to record a lis pendens, a document you can file to let the world know that somebody, the buyer, is claiming interest in a property,? Schorr says. ?This makes the property not marketable? and puts a stop or hold on any transactions on the property.
Buyers should understand that as long as they live up to the terms of the purchase contract, they are on pretty solid ground and should have every expectation of closing on the home.
Sellers may have a variety of reasons for trying to back out of an accepted purchase agreement.
Among them:
The seller gets a higher offer from another buyer.
The seller has been unable to find a suitable replacement home.
The seller loses a job or a family member dies, making it financially difficult to move.
The seller has emotional ties to the house and cant let go.
There is a disagreement within the sellers family about leaving the house.
The property appraises for more than what the buyer has offered.
These states recognize tenancy by the entirety: Alaska, Arkansas, Delaware, District of Columbia, Florida, Hawaii, Illinois, Indiana, Kentucky, Maryland, Massachusetts, Michigan, Mississippi, Missouri, New Jersey, New York, North Carolina, Oklahoma, Oregon, Pennsylvania, Rhode Island, Tennessee, Vermont, Virginia, and Wyoming.
A survivorship affidavit (sometimes called an affidavit of death or affidavit of continuous marriage) is a legal document used to remove a deceased owner from title to property by recording evidence of the deceased owners death in the land records. The purpose of a survivorship affidavit is to clear up the land records by letting third parties?including title companies, lenders, and the property tax officials?know that an owner has passed away and that you now own the property without that owner.
Many people want to remove a deceased owner from title to real estate after the owners death. Removing a deceased person from a property deed clears up the land and property tax records and allows the new owners to deal with the property.
Removing a deceased owner can be very simple or very complicated. If the deceased owner was the only owner, it is likely that probate or an alternative to probate will be required. If the property was held with a surviving spouse or other co-owner, an affidavit of survivorship may be used to avoid probate. These options are discussed in more detail below.
Using an Affidavit of Survivorship to Remove a Deceased Owner from Title
If you are already listed as a co-owner on the prior deed?or if you inherited an interest in the property through a life estate deed, transfer-on-death deed, or lady bird deed?you may use an affidavit of survivorship to remove the deceased owner.
What is an Affidavit of Survivorship?
An affidavit of survivorship is a legal document used to remove a deceased owner from title to property by recording evidence of the deceased owners death in the land records.
The purpose of an affidavit of survivorship is to clear up the land and tax records by letting third parties?including title companies, lenders, and the property tax officials?know that an owner has passed away and that you now own the property without that owner. It can be used in two situations:
While the deceased owner was alive, you and the deceased owner jointly owned the property as joint tenants with right of survivorship, tenants by the entirety, or community property with right of survivorship.
You did not own jointly own the property with the deceased owner while the deceased owner was alive, but the deceased owner named you to inherit the property through a life estate deed, TOD or beneficiary deed, or lady bird deed.
An affidavit of survivorship is sometimes called a survivorship affidavit, affidavit of surviving spouse, affidavit of surviving joint tenant, or affidavit of continuous marriage. These terms all refer to the same instrument.
How Do I Know if I Can Use an Affidavit of Survivorship?
To determine if you can use an affidavit of survivorship, review the most recent deed to the property.
If you are listed as a beneficiary under a life estate, lady bird, or TOD deed, look at the deed that gave you an interest as a beneficiary.
If you co-owned the property with the deceased owner, review the deed that transferred the property to you and the deceased owner. Look for language that creates a right of survivorship.
How Can I Tell if I Have a Right of Survivorship?
The only way to confirm that you have a right of survivorship is to review the deed. There are three ways you may hold title with right of survivorship:
Joint Tenants with Right of Survivorship. Both spouses and non-spouses may hold title as joint tenants with right of survivorship. Look for language like ?joint tenants with right of survivorship.
Tenants by the Entirety (Spouses Only). If you are in a state that recognizes tenancy by the entirety (see below), you can use a survivorship affidavit to remove your deceased spouse from the deed. Any language that indicates that you were married when you acquired the property should be enough. Look for the phrase ?husband and wife? or tenancy by the entirety.
Community Property with Right of Survivorship (Spouses Only). If you are in a community property state (see below), you may hold title as community property with right of survivorship. Not all community property contains a right of survivorship, so look for the phrase ?right of survivorship.
If the deed included survivorship rights, and if the other owners named in the deed survived the deceased owner, you can usually use an affidavit of survivorship to remove the deceased owner.
What States Recognize Tenant’s by the Entirety?
These states recognize tenancy by the entirety: Alaska, Arkansas, Delaware, District of Columbia, Florida, Hawaii, Illinois, Indiana, Kentucky, Maryland, Massachusetts, Michigan, Mississippi, Missouri, New Jersey, New York, North Carolina, Oklahoma, Oregon, Pennsylvania, Rhode Island, Tennessee, Vermont, Virginia, and Wyoming.
What States are Community Property States?
The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
A Note on Deeds to Remove Deceased Owner
We sometimes get questions from customers looking for a deed to remove a deceased owner. Some have been told by a government clerk that they need a quitclaim deed to remove a deceased owner from title to real estate. As a preliminary matter, it is important to note that county clerks are not attorneys. Although most are competent and experienced, there are many who are not. County clerks are not always correct and, in any event, should not be giving legal advice.
The problem with using a deed to remove a deceased owner comes from the simple fact that the owner is deceased. Because the owner is deceased, he or she cannot sign the deed to transfer title to the new owner. For someone to sign on behalf of the deceased owner, he or she would need legal authority to do so. The only way to get legal authority to act on behalf of a deceased owner is to open a probate proceeding as described below. This hassle can be avoided by simply using an affidavit of survivorship.
Probate and Alternatives to Probate
Probate is a legal proceeding to transfer a deceased owners interest to his or her heirs. A probate proceeding usually requires at least one filing with the court, possibly many more depending on the state. Many states require an attorney to assist with the probate process in most situations.
Some states allow alternatives to probate that can be used in limited circumstances. In Florida, for example, a Summary Administration is available if the deceased owner has been dead for over two years or if the value of the entire estate subject to administration in Florida?less the value of property exempt from the claims of creditors?does not exceed $75,000. Whether an alternative to probate is available is a fact-specific determination that usually requires an attorney.
Probate?or an alternative to probate?will usually be required if any of the following are true:
The deceased owner was the only owner listed on the prior deed to the property;
The deceased owner held title with multiple owners as tenants in common; or
The deceased owner held title with multiple owners, but none survived the deceased owner.
In these situations, there is no right of survivorship to automatically transfer title to the real estate to the surviving owners. This means that some legal documentation is needed to transfer title.
It can be complicated to determine whether probate is required and, if so, the steps needed to move the estate through the probate process. If you do not qualify to use an affidavit of survivorship, it is best to speak to an attorney about your options.
What effect does the death of an owner of real estate have on the title to real estate?
When a person who owns real estate passes away, depending on the manner on which the title to the real estate was held, a number of issues become necessary to address following such a persons death. If the title is held as a joint tenant or as a tenant by the entirety, the title to the real estate passes automatically to the surviving joint tenant (tenants) or the surviving spouse. In a tenancy by the entirety situation, there is no need for the deceased persons estate to be probated in order to pass title to the real estate to the survivor. However, if the title to the real estate is held as a tenant in common, then the deceased persons interest in the real estate will pass in accordance with a devise under the Will (if the person dies leaving a will ? which would then require that the Will be probated), or the deceased tenant in commons interest will pass in accordance with laws of intestacy, which will also require the probating of the deceased persons estate, in order to establish the decedents heirs-at-law to whom the real estate passes.
Also, upon the death of a person owning real estate, there is an automatic Massachusetts Estate Tax Lien and an automatic Federal Estate Tax Lien which is placed upon the property, to protect the Commonwealth of Massachusetts or the federal government getting its estate tax paid, if there is a Massachusetts or Federal Estate Tax due, resulting from the deceased persons estate. The current (calendar year 2012) threshold amount of estate assets that would trigger a Massachusetts estate tax due is $1,000,000, and the current (calendar year 2012) threshold amount of estate assets that triggers a Federal Estate Tax due following the death is the amount of $5,125,000. Unless the decedents estate exceeds these thresholds, there generally is no need to file either a Massachusetts Estate Tax return or a Federal Estate Tax return; however, in both instances, there is a need to record an Affidavit/Certificate of No Estate Tax with the Registry of Deeds or Registry District of the Land Court, in which the decedents property is located, the effect of which Affidavit/Certificate will be to document that there is no Massachusetts Estate Tax Lien and no Federal Estate Tax Lien.
Where the real estate is held by a joint tenant or a spouse in a tenancy by the entirety situation, although the title of the deceased persons interest in real estate passes automatically to the surviving spouse (in the instance of a tenancy by the entirety) or to the surviving joint tenant(s), in the instance of a joint tenancy, there is still a need to record in the Registry of Deeds or the Registry District of the Land Court, a certified copy of the decedents death certificate so as to document of record in the Registry and/or in the Registry District of the Land Court, the fact that the person has passed away. The death certificate is generally recorded at the same time that Affidavit/Certificate of No Estate Tax is recorded. When the real estate involved is registered land (also sometimes referred to as Land Court property), there may also be a need to record other documentation following a death in the chain of title, such as an Affidavit of No Divorce, and attested copies of certain probate related documents.
Mortgage lenders use something called qualification ratios to determine how much they will lend to a borrower. Although each lender uses slightly different ratios, most are within the same range. Some lenders will lend a bit more, some a bit less. We have taken average qualification ratios to come up with our three rules of home affordability.
Your maximum mortgage payment (rule of 28)
The golden rule in determining how much home you can afford is that your monthly mortgage payment should not exceed 28 percent of your gross monthly income (your income before taxes are taken out). For example, if you and your spouse have a combined annual income of $80,000, your mortgage payment should not exceed $1,866.
Your maximum total housing payment (rule of 32)
The next rule stipulates that your total housing payments (including the mortgage, homeowners insurance, and private mortgage insurance [PMI], association fees, and property taxes) should not exceed 32 percent of your gross monthly income. That means, for the same couple, their total monthly housing payment cannot be more than $2,133 per month.
Your maximum monthly debt payments (rule of 40)
Finally, your total debt payments, including your housing payment, your auto loan or student loan payments, and minimum credit card payments should not exceed 40 percent of your gross monthly income. In the above example, the couple with $80k income could not have total monthly debt payments exceeding $2,667. If, say, they paid $500 per month in other debt (e.g. car payments, credit cards, or student loans), their monthly mortgage payment would be capped at $2,167.
This rule means that if you have a big car payment or a lot of credit card debt, you wont be able to afford as much in mortgage payments. In many cases, banks wont approve a mortgage until you reduce or eliminate some or all other debt.
How to calculate an affordable mortgage
Now that you have an idea of how much of a monthly mortgage payment you can afford, you?ll probably want to know how much house you can actually buy.
Although you cannot determine an exact budget until you know what interest rate you will pay, you can estimate your budget. Assuming an average six percent interest rate on a 30-year fixed-rate mortgage, your mortgage payments will be about $650 for every $100,000 borrowed. (Just trust me on thatthe math is complicated.)
For the couple making $80,000 per year, the Rule of 28 limits their monthly mortgage payments to $1,866.
($1,866 / $650) x $100,000 = $290,000 (their maximum mortgage amount)
Ideally, you have a down payment of at least 10 percent, and up to 20 percent, of your future homes purchase price. Add that amount to your maximum mortgage amount, and you have a good idea of the most you can spend on a home.
Note: If you put less than 20 percent down, your mortgage lender will required you to pay private mortgage insurance (PMI), which will increase your non-mortgage housing expenses and decrease how much house you can afford.
Whether youre interested in snapping up a bargain home and renovating it to meet your needs, or you have a kitchen full of outdated appliances that you?d like to replace, an FHA 203k home loan may be the solution to your financial needs.
Unlike standard mortgage loans, this loan ? officially known as the Federal Housing Administrations 203k Rehabilitation Mortgage Insurance Program ? wraps renovation and purchase or renovation and refinancing costs into one mortgage.
Advantages of an FHA 203k Loan
Prospective buyers sometimes shy away from homes that need renovation because they cannot come up with the cash for a new roof or new flooring in addition to a down payment, closing costs, and moving expenses. A mortgage loan that combines all of these expenses allows you to extend your payments for the renovation over the life of the loan rather than paying a lump sum. You can also deduct the interest you pay on your entire mortgage on your income taxes, even the portion you use for renovations. If you paid for renovations with a credit card, you wouldnt be able to deduct any of those interest payments.
Back in the days of easy money before the housing bubble burst, homeowners who wanted to redo their kitchen or add a whirlpool tub to their master bath could easily take out a home equity loan or line of credit to pay for their pet projects. Today, mortgage lenders are far less likely to approve a home equity loan. In fact, without significant home equity and excellent credit, your chances of qualifying for a second mortgage are slim.
Heres where an FHA 203k loan can help: You can refinance your existing mortgage and add the cash needed for your home renovation project into the loan balance. This option can help you decide whether to remodel or move.
If youre considering a FHA 203k loan, a great place to start is LendingTree.com. You will receive multiple loan offers in minutes.
FHA 203k Loan Options
While many of the features of an FHA 203k loan are similar to a standard FHA loan, the renovation component makes these loans a little more complex for borrowers. There are two types of 203k loans: a standard option and a streamlined option. Which one is right for you depends on how much you intend to spend on your renovation and what you intend to do.
Streamlined Loan. The streamlined loan is limited to a maximum of $35,000 in repairs, regardless of the home value. Theres no minimum you need to spend, so if you?d just like to replace your carpet, you can wrap a few thousand dollars into your mortgage and avoid spending cash. Repairs must start within 30 days of your loan closing and be finished within six months. This loan product also limits the types of renovations you can make to non-structural, non-luxury items. In other words, you cant add a second floor to your house or install a pool with a swim-up bar. You can use it, however, to upgrade to granite kitchen counters, replace your air conditioner, or put in new windows.
Standard Loan. For bigger projects, you need a standard FHA 203k loan. For this loan, you must make at least $5,000 worth of renovations. You can do almost any home improvement project as long as it adds value to the property, such as building an addition, finishing a basement, and remodeling your bathrooms and your kitchen. However, even with the standard loan, some luxury items ? such as a hot tub or a swimming pool ? cannot be financed. In addition to the size of the renovation, the big difference with this loan option is that you are required to work with a HUD-approved consultant who inspects and evaluates your renovation. You can even finance as much as six months of mortgage loan payments into this 203k loan if you cant live in your home during the renovation.
Fha 203k Loan Options
Qualifying for a Loan
To qualify for a 203k loan, you?ll need to meet the same requirements as any other FHA loan:
Your credit score must be at least 620 or 640, depending on the lender. If youre unsure what your credit score is, you can get it for free through Credit Karma.
Your maximum debt-to-income ratio can only be 41% to 45%
You need a down payment (or home equity if you are refinancing) of 3.5% or more
The loan amount (including both the purchase and renovation costs) must be lower than the maximum loan limit for your area
You must be an owner-occupant of the property you intend to renovate
All FHA borrowers pay upfront mortgage insurance, regardless of how much home equity they have or the size of their down payment, which increases the size of the monthly payment. Annual mortgage insurance is also required for borrowers who make a down payment of less than 20% or have a loan-to-value of 78% or more. FHA mortgage insurance covers any losses to lenders if borrowers default, and 203k borrowers pay additional fees including a supplemental fee of $350 or 1.5% of the repair costs, along with other fees for an extra appraisal and title policy update after the repairs are complete. Depending on the size of your project, these fees average a total of $500 to $800.
The biggest difference in qualifying for an FHA 203k mortgage rather than a traditional FHA mortgage is that you must qualify based on the costs of your renovation, in addition to the purchase price. For example, if you want to refinance or purchase a home valued at $150,000 and finance $25,000 in repairs, you need to qualify for a $175,000 mortgage and have the home equity or down payment of 3.5%.
FHA 203k Loan Process
Once youve decided you want to apply for a combo loan for your renovation and purchase, you need to identify contractors who can do the work. Its best to work with a lender who has experience with this loan program, as well as contractors who have worked with homeowners who have a 203k loan. This is because they are able to handle the additional paperwork to meet FHA requirements and to accept the FHA-driven payment schedule.
Most lenders who work with 203k loans can recommend contractors to you. Also, home improvement stores such as Lowes and Home Depot often have experts who have worked with this loan program. If you dont have contractors picked out, HomeAdvisor is a great place to start. They do all the research for you to make sure youre getting the best contractor for your job.
You need at least one bid (and sometimes as many as three) for your repair work from licensed professionals. You make the decision as to who does your work, but your lender needs to see the bids to make sure the amount you are being charged is reasonable. Your lender requires an appraisal of the current home value, and will base the loan amount on that appraisal plus the cost of the repairs. Most lenders require an inspection and title policy update when the job is complete to make sure all contractors have been paid and no liens have been placed on the property.
Fha 203k Loan Process
Obtaining an FHA 203k mortgage may seem complicated, but if your cash reserves are low or you dont have a lot of home equity, it may be your best option. Just be sure to shop around for a lender with plenty of 203k experience so that you can avoid complications with the loan. And make sure the contractor you choose also has 203k mortgage experience so they know what the FHA program may require in terms of inspections and receipts for proof the work has been done. With this program you can find yourself with the kitchen of your dreams and a monthly mortgage payment you can afford.
1. Documentation includes deletions, correction fluid, or other alteration 2. Different handwriting or type styles within a document 3. Buyer currently resides in subject property 4. Seller is not currently reflected on title 5. Buyer is not the applicant 6. Buyer(s) deleted from/added to sales contract 7. Power of Attorney is used 8. Owner is someone other than seller shown on sales contract 9. Purchase price is substantially higher than predominant market value 10. Purchase price is substantially lower than predominant market value 11. Title Work Prepared for and/or mailed to a party other than the lender or attorney 12. Evidence of financial strain may indicate a compromised sale transaction (flip, foreclosure rescue, straw buyer refinance, etc.), or might suggest undisclosed credit problems in the case of a refinance a. Income tax, judgments or similar liens recorded b. Delinquent property taxes c. A Notice of default or modification agreement recorded 13. Seller owned property for short time 14. Buyer has pre-existing financial interest in the property 15. Date, amount of existing encumbrances appear suspicious 16. Chain of title includes an interested party such as realtor or appraiser 17. Buyer and seller have similar names (property flips often utilize family members as straw buyers) 18. Borrower or seller name is different than on sales contract and title 19. Payouts to unknown parties or parties not providing real estate related services 20. Refinance pay offs for previously undisclosed liens 21. Short sale offer is from a related party 22. Numbers on the documentation appear to be squeezed? due to alteration 23. Loan purpose is cash-out refinance on a recently acquired property 24. Earnest money deposit equals the entire down payment, or is an odd amount
The Trump administration is ordering a halt on evictions nationwide through December for people who have lost work during the pandemic and don’t have other good housing options.
The new eviction ban is being enacted through the Centers for Disease Control and Prevention. The goal is to stem the spread of the COVID-19 outbreak, which the agency says in its order “presents a historic threat to public health.”
It’s by far the most sweeping move yet by the administration to try to head off a looming wave of evictions of people who have lost their jobs or taken a major blow to their income because of the pandemic. Housing advocates and landlord groups both have been warning that millions of people could soon be put out of their homes through eviction if Congress does not do more to help renters and landlords and reinstate expanded unemployment benefits.
But this new ban, which doesn’t offer any way for landlords to recoup unpaid rent, is being met with a mixed response. First, many housing advocates are very happy to see it.
“My reaction is a feeling of tremendous relief,” says Diane Yentel, CEO of the National Low Income Housing Coalition. “It’s a pretty extraordinary and bold and unprecedented measure that the White House is taking that will save lives and prevent tens of millions of people from losing their homes in the middle of a pandemic.”
That said, she adds that a move like this from Congress or the White House is “long overdue.” And she says with no money behind it, it kicks the can down the road.
“While an eviction moratorium is an essential step, it is a half-measure that extends a financial cliff for renters to fall off of when the moratorium expires and back rent is owed.”
Landlords are worried about falling off a cliff too. Doug Bibby is the president of the National Multifamily Housing Council. He says, “We are disappointed that the administration has chosen to enact a federal eviction moratorium without the existence of dedicated, long-term funding for rental and unemployment assistance.”
“An eviction moratorium will ultimately harm the very people it aims to help by making it impossible for housing providers, particularly small owners, to meet their financial obligations and continue to provide shelter to their residents,” Bibby said. He’s calling for a myriad of financial assistance measures to help property owners.
Under the rules of the order, renters have to sign a declaration saying they don’t make more than $99,000 a year ? or twice that if filing a joint tax return ? and that they have no other option if evicted other than homelessness or living with more people in close proximity.
Evictions for reasons other than nonpayment of rent will be allowed. The government says it will impose criminal penalties on landlords who violate the ban.
Both Bibby and Yentel are calling on Congress to enact legislation with funding to help renters and landlords. “Congress and the White House must get back to work on negotiations to enact a COVID-19 relief bill with at least $100 billion in emergency rental assistance.” Yentel says. “Together with a national eviction moratorium, this assistance would keep renters stably housed and small landlords able to pay their bills and maintain their properties during the pandemic.”
Ownership structure: Perhaps you are working with several different owners on a new deal. It makes sense to have a new LLC, as it will define the ownership percentages and the roles of each owner. Working in a new state: This could be argued either way, but to me, it makes sense to incorporate in the state where your investment property is. Doing a flip: Many investors do a new LLC every flip. This makes sense, as it separates that flip from other properties with respect to taxes and liability. More on this in the video above. Asset protection: Holding each purchase in its own LLC will compartmentalize each property from the other. If there is a liability claim with one property, it wont affect any others held by you. Some would say that this is the main reason to hold each deal individually. Watch the video for a deeper conversation on how valid this is. Related: Stop! DON?T Put Your Investment Property in an LLC If?
Cons of Using a New LLC Every Deal
Higher costs: You will pay a fee to set up each LLC and, in most states, another fee to file a return every year and a fee to your CPA. Growing portfolio: Depending on the size of your portfolio, it might be easier to get a loan if you lump several properties into one LLC. Holding each property individually could make it harder to get financing, especially if the values are less than $100K. Insurance: You can obtain a reasonably sized general liability policy on your properties and arguably have the same level of asset protection as you would if you held each address individually.
I see a lot of property managers that fail once they hit a certain scale because they don’t have systems in place. They get to a certain point, such as 200 doors, where they need to have solid systems and processes. If not, they fail in serving their clients. Owners start losing money and the entire business goes downhill quickly. Vet your PM and understand how they are going to deal with growth. – Noel Christopher, Renters Warehouse
2. Going With The First Tenant
You need to find the right tenant, not the first tenant. To find the right tenant, you need to attract them. Don’t keep putting off repairs and maintenance. By showing them you take pride in maintaining the property, they will treat it with respect and it will cost you less in the long run. – Sam Grooms, WhiteHaven Capital
3. Not Being Aware Of The Property’s Physical Condition And Components
This lack of awareness can result in system failures and high capital expenditures where small improvements or regular maintenance could have diverted more significant costs. Two strategies to prevent costly, preventable repairs are hiring a third-party inspector for an annual property visit and report, and to develop a system for reviewing work orders by category to see if there are any trends. – Lee Kiser, Kiser Group
4. Being Reactive Versus Proactive With Maintenance
Property managers have a tough job. They are paid to field the phone calls and the 1 a.m. maintenance requests that we, as owners, pay them to handle. The common mistake that property managers make is simply being too reactive versus proactive. Often, a small repair issue becomes a capital expenditure when it goes unresolved for months (or years). Simply said, the most common mistake is neglect. – Spencer Hilligoss, Madison Investing
5. Not Checking the Contractor’s References
A big mistake many of us make is hiring a contractor who looks great on paper. Always call a minimum of two references. The wasted time, money and inconvenience of hiring a general contractor who cannot handle the project effectively and efficiently results in frustration all around. Also, walking on the site of a previous project helps you align your styles and expectations. – Susan Leger Ferraro, Peace, Love, Happiness Real Estate
6. Imprecise Accounting Practices
It is essential for investors to be able to rely on accurate records from the property manager. Precise accounting is of the utmost importance. Reputable property managers use software to manage your accounting and will send monthly statements. – Beatrice de Jong, Open Listings (YC W15)
7. Failing To Properly Prepare A Vacant Unit
Poor property managers fail to adequately prepare your vacant unit for turnover to a new tenant. Everything should be clean, even the windows. Walls should have a uniform texture, with holes removed. If you attract a tenant that accepts an unkempt unit, then that tenant will keep it the same way. A clean unit also reduces vacancy. To attract a respectable tenant, show a respectable property. – Keith Weinhold, Get Rich Education
8. Poor Service
The rental space is a lucrative business, but poor property management can hurt you. Property managers should be mindful of falling into situations that can become costly or ruin reputations. If the tenant informs the property manager about a problem, ignoring the situation can lead to costly repairs or disgruntled renters who may leave, causing high turnover and potential vacancies. – Bobby Montagne, Walnut Street Finance
9. Installing Smart Home Tech
All too often, overeager property managers will jump at the chance to install the latest connected home devices in new apartment buildings. Hardware can get outdated quickly, and buildings rarely have the expertise in-house to solve the inevitable bugs and technical failures. Most connected devices are better suited for a savvy homeowner than an institutional multifamily developer. – Brad Hargreaves, Common
Youve been sued. First, you panic. Then, you think about how to defend yourself. One of the best ways to fight back when you are being sued is through affirmative defenses.
What is an affirmative defense? An affirmative defense is a reason why a defendant should not have to pay damages even when the facts in the complaint are true. You can assert affirmative defenses while still denying the allegations in a complaint.
Its not recommended that affirmative defenses be the first thing you file upon getting served with a complaint. A motion for extension of time and a motion to dismiss are more appropriate first filings. However, your affirmative defenses should be uppermost in your mind early on. They are an essential part of your case strategy.
Affirmative defenses give you something to focus on in discovery. They keep you in the case long after most pro se litigants would have been defeated. If theyre well written, they may even give you leverage in settlement negotiations or a final win. So what do you need to know about affirmative defenses?
Important Things to Know About Affirmative Defenses
Its often best to file your affirmative defenses with your answer as a single document with two main sections.
A person asserting an affirmative defense is required to meet all the elements (requirements) of that defense. If any element is missing, the affirmative defense can be easily defeated.
Each defense must be expressed as a set of facts.
In order to defeat you, the plaintiff has to strike all of your affirmative defenses.
Listing all viable affirmative defenses makes your case stronger.
Elements of an affirmative defense may vary across jurisdictions, so check to be sure you have the right ones for your jurisdiction.
Asserting an Affirmative Defense: An Example
First, find the elements of the defense you want to assert. Statutes and appellate cases are good resources for this. Then, state any facts in your own case that make up the elements of that defense.
Heres an example. In your jurisdiction, the affirmative defense of fraud has five elements, (1) a false representation; (2) about a material fact; (3) made with knowledge of its untruth; (4) with intent to deceive; and (5) defendant relied on the representation.
If you want fraud as an affirmative defense in a breach of contract case, how might you assert it?
Sample 1. Affirmative Defense?Fraud
ASSERTION: The plaintiff made a false statement when I signed the contract.
NOT GOOD: This is missing some elements of fraud. It can be easily struck.
Sample 2. Affirmative Defense?Fraud
ASSERTION: The plaintiff committed fraud.
NOT GOOD: This is simply stating a legal conclusion. It can be easily struck.
Sample 3. Affirmative Defense?Fraud
The plaintiff said he owned the property in dispute but knew all along he didnt. He wanted me to believe his statement so I could enter into a rental contract with him. I thought he owned the land, so I signed the contract.
GOOD: This defense alleges facts that support each and every element of fraud. It includes (1) a false representation; (2) about a material fact; (3) made with knowledge of its untruth; (4) a statement about intent to deceive; and (5) the defendants reliance on the representation.
Below is a list of sample affirmative defenses and their elements or requirements. To repeat, the elements and requirements vary by jurisdiction.
1.
Abandonment. In a case of copyright infringement, a defendant can argue that the owner of a trademark cannot exclude others from using that trademark if it has been abandoned.
Sample Elements
the owner, assignor, or licensor of a trademark discontinued its good faith and exclusive use of the trademark in the ordinary course of trade;
the owner, assignor, or licensor intended not to resume using the trademark;
the owner, assignor, or licensor acts, or fails to act, so that the trademarks primary significance to prospective consumers has become the product or service itself and not the producer of the product or provider of the service; and
the owner, assignor, or licensor fails to exercise adequate quality control over the goods or services sold under the trademark by a licensee.
Source: Manual of Model Civil Jury Instructions for the District Courts of the Ninth Circuit (2017), Section 15.22, pg. 343.
2.
Accord and Satisfaction?an agreement between two parties to accept terms that differ from the original amount of a contract or claim.
Sample Elements
Consideration to support an accord and satisfaction
an offer of partial payment in full satisfaction of a disputed claim
acceptance of the partial payment by the creditor with the knowledge that the debtor offered it only upon the condition that the creditor accepts the payment in full satisfaction of the disputed claim or not at all
Source: Charleston Urban Renewal Authority v. Stanley, 176 W.Va. 591, 346 S.E.2d 740 (1985)
3.
Assumption of Risk?a defendant must prove that the plaintiff knew of a dangerous condition and voluntarily exposed himself to it
Sample Elements
knowledge on the part of the injured party of a condition inconsistent with his safety
appreciation by the injured party of the danger of the condition
a deliberate and voluntary choice on the part of the injured party to expose his person to that danger in such a manner as to register assent on the continuance of the dangerous condition
Sources: Alley v. Praschak Machine Co., 366 So.2d 661 (Miss.1979), citing Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994).
4.
Breach of Contractthe act of breaking the terms of a contract without a legal excuse
Sample Elements
a legally enforceable obligation of a plaintiff to a defendant
the plaintiffs violation or breach of that obligation
injury or damage to the defendant caused by the breach of obligation
Sources: Filak v. George, 267 Va. 612, 619, 594 S.E.2d 610, 614 (2004).
5.
Collateral Estoppel (Issue Preclusion)?a doctrine that bars a party from re-litigating issues
Sample Elements
the issue previously decided is identical with the one presented in the action in question
the prior action has been finally adjudicated on the merits
the party against whom the doctrine is invoked was a party or in privity with a party to the prior adjudication
the party against whom the doctrine is raised had a full and fair opportunity to litigate the issue in the prior action
Source: Betts v. Townsends, Inc., 765 A.2d 531, 535 (Del.2000).
6.
Duressthe act of applying force to illegally compel someone to perform an act
Sample Elements
one side involuntarily accepted the terms of another
circumstances permitted no other alternative
said circumstances were the result of coercive acts of the opposite party
Sources: Urban Plumbing & Heating Co. v. United States (U.S. Ct. of Claims 1969), 408 F. 2d 382, 389-390; Blodgett v. Blodgett, 49 Ohio St.3d 243, 245 (1990)
7.
Equitable estoppel?where a court bars legal relief to a party who has acted unfairly
Sample Elements
a representation by conduct or word
justifiable reliance [on the representation]
a change in position to ones detriment because of the reliance
Sources: American Bank and Trust Co. v. Trinity Universal Insurance Co., 194 So.2d 164 (La.App. 1st Cir. 1966); Babin v. Montegut Insurance Agency, Inc., 271 So.2d 642 (La.App. 1st Cir. 1972).
8.
Failure of Condition(s) Precedent?an action or actions required to take place (usually by the plaintiff) before the defendant should perform on a contract.
Sample Elements
an act or event occurring subsequent to the making of a contract
that must occur before there is a right to immediate performance and
before there is a breach of the contractual duty
Sources: Hohenberg Bros. Co. v. George E. Gibbons & Co. 537 S.W.2d 1, 3 (Tex.1976).
9.
Failure to Join Necessary or Indispensable Party?a case can be dismissed where a plaintiff has not included (or ?joined?) a party whose participation is required.
Sample Elements ? A person must be joined in an action if:
in that persons absence, complete relief could not be accorded among the existing parties; and
the person claims an interest in the subject of the action and is so situated that a disposition of the action in the persons absence would impede the persons ability to protect that interest or leave a current party subject to a substantial risk of incurring multiple or inconsistent obligations by reason of the persons claimed interest.
Source: Hoyt Props., Inc. v. Prod. Res. Grp., L.L.C., 716 N.W.2d 366, 377 (Minn.App.2006).
10.
Failure to Mitigate Damages?an affirmative defense whereby an award of damages is reduced when the plaintiff took no action to avoid or reduce damages.
Sample Elements
the defendants breach caused the plaintiffs harm;
damages could have been avoided with reasonable efforts or expenditures; and
plaintiff did not take reasonable steps to avoid harm.
Source: Judicial Council of California, Civil Jury Instructions 358. Mitigation of Damages, pg. 176.
11.
Force Majeure (Act of God)?A party is not deemed to have failed to meet an obligation under a contract if their performance or failure to perform was caused by events that could not be anticipated and were beyond their control. Note: parties to a contract may write in a force Majeure clause. Then, the clause will typically rule.
Sample Elements
the event was caused by an Act of God, war, strike, riot, electrical outage, fire, explosion, flood, blockade, governmental action, or other catastrophe;
the consequences were unforeseen and unavoidable; and
the defendant acted with due diligence, to prevent damage, harm or injury or further damage, harm or injury.
Sources: Skandia Ins. Co., v. Star Shipping, 173 F. Supp. 2d 1228, 1239 (S.D. Ala. 2001); Kleberg County v. URI, Inc., Tex: Court of Appeals, 13th Dist. 2016.
12.
Fraud?a wrongful act of deception that causes a person to give up property or a right
Sample Elements
a false representation
in reference to a material fact
made with knowledge of its falsity
with the intent to deceive
action is taken in reliance upon the representation
Sources: United States v. Kiefer, 97 U.S.App.D.C. 101, 228 F.2d 448 (1955); Bennett v. Kiggins, 377 A.2d 57, 59 (D.C.1977)
13.
Frustration of Purpose?a situation whereby unexpected circumstances undermine the purpose of a contract
Sample Elements
frustration of the principal purpose of the contract
that the frustration is substantial
that the non-occurrence of the frustrating event or occurrence was a basic assumption on which the contract was made
Source: Sabine Corp. v. ONG Western, Inc., 725 F.Supp. 1157, 1178 (W.D.Okla. 1989).
14.
Judicial Estoppel?a doctrine that bars a party from taking positions in a case that is inconsistent with their positions in a prior judicial proceeding
Sample Elements
sworn, prior inconsistent statement made in a judicial proceeding
the party now sought to be estopped successfully maintained the prior position
the prior inconsistent statement was not made inadvertently or because of mistake fraud, or duress
the statement was deliberate, clear, and unequivocal
Sources: Vinson & Elkins v. Moran, 946 S.W.2d 381, (1997)
15.
Impossibility of Performance?A defendant can allege as an affirmative defense that it was impossible to perform the contract.
Sample Elements
the defendant? performance of the contract was made impossible;
through no fault of the defendant(s); and
the impossibility was due to unforeseeable events.
Source: Civil Jury Instructions Hawaii, Instruction No. 15.20: Contract ? Impossibility of Performance.
16.
Justification (Necessity/Self-defense)?a defense whereby it must be proven that the defendants actions were necessary to protect himself or others from harm.
Sample Elements
that defendant was under an unlawful and present, imminent, and impending threat of such a nature as to induce a well-grounded apprehension of death or serious bodily injury;
that defendant had not recklessly or negligently placed himself in a situation in which it was probable that he would be forced to choose the criminal conduct;
that defendant had no reasonable, legal alternative to violating the law, a chance both to refuse to do the criminal act and also to avoid the threatened harm; and
that a direct causal relationship may be reasonably anticipated between the criminal action taken and the avoidance of the threatened harm.
Source: US v. Andrade-Rodriguez, 531 F. 3d 721 ? Court of Appeals, 8th Circuit 2008.
17.
Laches?an unreasonable delay in asserting a claim
Sample Elements
unreasonable delay or lapse of time in asserting a right
absence of an excuse for the delay
knowledge, actual or constructive, of the injury or wrong
prejudice to the other party
Source: State ex rel. Meyers v. Columbus 71 Ohio St.3d 603, 605, 646 N.E.2d 173 (1995)
18.
No Adequate Assurances/Anticipatory Breach ?A defendant can allege that any failure to keep her promise is excused because, before the defendant was to perform, circumstances indicated that the plaintiffs promise would not be kept and the plaintiff failed to give adequate assurances.
Sample Elements
the defendant had reasonable grounds to believe that the plaintiff would not or could not keep his promise;
the defendant made a reasonable effort to get assurances from the plaintiff that the plaintiff would keep his promise; and
under the circumstances, the plaintiff did not give adequate assurances within a reasonable time.
Source: Alaska Civil Pattern Jury Instructions, 24.04D: Plaintiffs Anticipatory Breach By Repudiation ? No Adequate Assurances (Affirmative Defense).
19.
Unclean Hands?a doctrine whereby a defendant argues that the plaintiff is not entitled to obtain an equitable remedy (a remedy forcing the defendant to honor a contract) because the plaintiff acted unethically or in bad faith with respect to the subject of the complaint
Sample Elements
the plaintiff is guilty of immoral, unconscionable conduct;
the conduct was relied upon by the defendant; and
the defendant was injured thereby.
Sources: Doe v. Deer Mountain Day Camp, Inc., 682 F. Supp. 2d 324 ? Dist. Court, SD New York 2010, quoting Nat?l Distillers & Chem. Corp. v. Seyopp Corp. [17 N.Y.2d 12, 267 N.Y.S.2d 193], 214 N.E.2d 361, 362 (1966)
20.
Novationthe substitution of an old contract with a new one
Sample Elements
the existence of a previously valid contract
the agreement of all the parties to a new contract
the extinguishment of the original contractual obligation
the validity of the new contract
Source: Sans Souci v. Division of Fla. Land Sales & Condominiums, Dept. of Business Regulation, 421 So.2d 623, 630 (Fla. 1st DCA 1982).
21.
Promissory Estoppel?a doctrine by which a defendant can claim that he acted in response to the plaintiffs promise
Sample Elements
a promise
foreseeability of reliance thereon by the promissor
substantial reliance by the promisee to his detriment
Sources: Aubrey v. Workman, 384 S.W.2d 389, 393 (Tex.Civ. App.Fort Worth 1964).
22.
Ratificationthe act of giving consent to or sanctioning the prior acts of a defendant such that a plaintiff cant complain about the act later
Sample Elements
approval by act, word, or conduct
with full knowledge of the facts of the earlier act
with the intention of giving validity to the earlier act
Source: Motel Enterprises, Inc. v. Nobani, 784 SW 2d 545 ? Tex: Court of Appeals (1990)
23.
Res judicata?a doctrine that prevents a plaintiff from litigating claims that have been either finally adjudicated or could have been adjudicated in a prior claim
Sample Elements
a claim or issue raised in the present action is identical to a claim or issue litigated in a prior proceeding
the prior proceeding resulted in a final judgment on the merits
the party against whom the doctrine is being asserted was a party or in privity with a party to the prior proceeding
Source: People v. Barragan 32 Cal.4th 236, 252-253 (2004)
24.
Unconscionabilitythe absence of meaningful choice on the part of a party to a contract because the terms are overwhelmingly one-sided in favor of the party with the superior bargaining power
Sample Elements
circumstances surrounding each of the parties to a contract such that no voluntary meeting of the minds was possible; and
unfair and unreasonable contract terms.
Sources: Vistein v. American Registry of Radiologic Techns., Dist. Court, ND Ohio 2007; Collins v. Click Camera & Video, Inc. 86 Ohio App.3d 826, 832, 834, 621 N.E.2d 1294 (Ohio Ct.App.1993).
25.
Undue Influence?a doctrine whereby a contract can be rendered void or voidable if a person is reasonably considered to be in a position of trust in relation to another person and abuses that trust.
Sample Elements
the existence of a confidential or fiduciary relationship between the grantor and a fiduciary;
the fiduciary or an interest which he represents benefits from a transaction; and
the fiduciary had an opportunity to influence the grantors decision in that transaction.
Source: Kar v. Hogan, 251 NW 2d 77 ? Mich: Supreme Court 1976.
26.
Unilateral Mistake of Fact?A defendant may allege as an affirmative defense that there was no contract because he was mistaken about a material fact.
Sample Elements
the defendant was mistaken;
the plaintiff knew the defendant was mistaken and used that to take advantage of him;
the defendants mistake was not caused by the defendants excessive carelessness; and
defendant would not have agreed to enter into the contract if he?d known about the mistake.
Source: Judicial Council of California, Civil Jury Instructions (2018), 330: Affirmative Defense?Unilateral Mistake of Fact, pg. 138.
27.
Unjust Enrichment?a benefit for which the one enriched has not paid or worked and morally and ethically should not keep
Sample Elements
plaintiff has conferred a benefit on the defendant, who has knowledge thereof
defendant voluntarily accepts and retains the benefit conferred
the circumstances are such that it would be inequitable for the defendant to retain the benefit without paying the value thereof to the plaintiff
Source: Henry M. Butler Inc. v. Trizec Properties Inc., 524 So.2d 710 (Fla. 2d DCA 1988)
28.
Usurythe illegal act of lending money at unreasonably high rates of interest. Sample Elements
the transaction must be a loan or forbearance;
the interest to be paid must exceed the statutory maximum the loan and interest must be absolutely repayable by the borrower; and
the lender must have a willful intent to enter into a usurious transaction.
Sources: Ghirardo v. Antonioli, 883 P. 2d 960 ? Cal: Supreme Court 1994.
29.
Violation of the Real Estate Settlement Procedure Act (RESPA)?In many cases, a defendant can allege as an affirmative defense that the plaintiff violated provisions of a statute. The defendant would review the facts of his case alongside the statute and allege anything thats missing. A RESPA violation might also be used to allege the failure of conditions precedent.
Sample Allegations
failure to provide the Housing and Urban Development (HUD) special information booklet;
failure to provide a Mortgage Servicing Disclosure Statement and good faith estimate of settlement/closing costs to the defendant at the time of the loan application or within three (3) days thereafter;
failure to provide defendants with an Annual Escrow Disclosure Statement for each year of the mortgage since its inception;
giving or accepting fees, kickbacks and/or other things of value in exchange for referrals of settlement service business, and splitting fees and receiving unearned fees for services not actually performed; or
charging a fee at the time of the loan closing for the preparation of truth-in-lending, uniform settlement and escrow account statements.
Sources: LaSalle Bank, NA v. Shearon, 19 Misc. 3d 433 (2008); Real Estate Settlement Procedure Act (?RESPA?) ? 12 U.S.C. section 2601.
30.
Violation of the Truth in Lending Act (TILA)?A foreclosure defendant can allege that the plaintiff violated provisions of TILA. The defendant would review the facts of his case alongside the statute and allege anything thats missing. A TILA violation might also be used to allege failure of conditions precedent.
Sample Allegations
failure to properly and accurately disclose the amount financed;
failure to clearly and accurately disclose the finance charge;
failure to clearly and accurately disclose the annual percentage rate;
failure to clearly and accurately disclose the number, amounts and timing of payments scheduled to repay the obligation; or
failure to clearly and accurately itemize the amount financed.
Sources: Truth in Lending Act (TILA) ? 15 U.S.C. Section 1601; Inge v. Rock Financial Corp., 281 F. 3d 613 (2002).
31.
Waiverthe relinquishment or surrender of a right or privilege
Sample Elements
the existence, at the time of the alleged waiver, of a right, advantage or benefit
the knowledge, actual or constructive, of the existence thereof
an intention to relinquish such right, advantage or benefit
Source: Fetner v. Rocky Mount Marble & Granite Works, 251 N.C. 296, 302, 111 S.E.2d 324, 328 (1959).
Knowing the elements of an affirmative defense and having the ability to properly assert that defense takes you a long way to managing your case strategically. As a pro se litigant, it also helps you gain much respect (but not much love) from your opponent.