Category: Buying a Home


Why a Permit Search is so Important

By Aaron M. Davis, President of Hillsborough Title

night-office-shirt-mail

It’s June of 2013, and I get the call. It’s that number you haven’t seen call your cellphone in a while, and something in your gut says, “This isn’t going to be good.” An agent who does business with us, let’s call her “Sally” for our purpose here, was handling the seller side of a transaction in which the buyer selected title. The buyer was an institutional investor who had a relationship with a national title provider. In June of 2013, it was NOT the norm for the title agency to order any type of municipal lien search or permit search. At this time, it was not required as part of the FAR/BAR contract. In fact, the contract only contained the Miami-Dade provision as to municipal lien searches at that time. However, since the buyer was an institutional investor, they were well aware of the risk that resided in Florida pertaining to permits.

Sally begins the conversation something like this, “Hi Aaron, I have a seller of a property who is ready to sue me, my broker, the previous seller, and the law firm who handled the transaction.”

I respond, “Well, good morning to you Sally!”

Sally went on, filling me in on the details.

The current Title Company performed a Municipal Lien Search with Permit Search as part of the buyer’s requirements and due diligence. The permit search pulled up an open permit on the pool. The house was built in 1998 and Buyer 1 bought direct from the builder/developer. The pool was added to the property in 1999 by buyer 1, and in 2004, Buyer 1 sold to Buyer 2, then Buyer 2 selling to the current buyer, Buyer 3 in 2007.

However, nowhere along the chain of the transaction was any permit search performed. The contracts didn’t call for it, and the title provider never searched, as it wasn’t customary or required. Back then, the title commitments and policies contained an EXCEPTION for what is now called the Section 159 Statute, which is related to items of “unrecorded nature” (i.e. unrecorded code enforcement, utility bills and permits).

So in 2013, the first permit search was completed only to find the open permit on the pool. It was a cash offer and the seller was free and clear; no liens, judgments, and the seller already vacated the property and was leaving the state. I make some calls, get it resolved and close the deal! Easy peasy, lemon squeezy.

WRONG!

So here it begins: The buyer won’t buy the home until the permit is closed. So, my first call to action- call the pool contractor – from 20 years ago – who is no longer in business. Second call, let’s contact another pool contractor to see if they can inspect and sign off on another contractor’s work. WRONG, no can do. Their liability insurance won’t allow that.

Next, let’s call an engineer! An engineer went to school for this sort of thing, and he can sign off! So we have the owner call the engineer to see how he can assist. The engineer says, “Sure, no problem, let me call the county to see the issue with the permit.” As it turns out, it was the final PLUMBING inspection for the pool. Engineer laughs and says, “Well, it’s 20 years old and it’s not leaking, I’ll sign off on it.” (Crowd erupts with applause. Problem solved, right?)

As my friend Lee Corso says, “NOT SO FAST MY FRIEND!!!”

Per the county, in order to close a permit of this nature, the pool has to be brought into current compliance with Child and Elderly Safety. So, guess what the pool that was built in 1999 DIDN’T have? You guessed it, child safety gates!

Let’s do the math:

  • $250.00 to the County to reopen the permit
  • $400.00 to the engineer
  • $2000.00 for the child safety gate
  • $50.00 County re-inspection fee

Now, let’s add up the losses:

  • $1,000.00 is expenses to the seller for added utility, storage, expenses
  • Future referrals to the agent from a seller who thinks perhaps it’s the agent’s fault
  • Future referrals to the prior title company, who did the closing in 2007, that the agent now may think is THEIR fault

The losses can go on and on.

 

In September of 2013, the FAR/BAR contract was then amended to include the requirements for permit searches. After the fact, we now see the slew of issues that are caught due of performing the search. (Roofs are a very common issue.)

Now here is the scary part – even though it’s is a part of the FAR/BAR contract, there are still title agencies and law firms that STILL DO NOT PERFORM THE REQUIRED SEARCH!

With that being said, agents, I highly suggest that you ask for THREE things from your title provider when closing:

  1. Get a copy of the preliminary settlement statement (to have your client’s fees)
  2. Ask for a copy of the title commitment (to see if there are any items outside of the norm, odd exceptions, etc)
  3. A copy of the results from the lien search, showing there are no outstanding issues that will turn up in the standard title search

Darn that DODD-FRANK!

Cropped image of businesswoman writing on checklist

Just imagine, after years of struggling to complete college, your son, little Johnny has finally has his head on straight. He graduated, he’s worked for the family business for two years and is doing well. He met a nice girl and they have married.

He wants to buy a home. Unfortunately, Johnny has not always made the best decisions. His credit is not where it needs to be. Based on the fact that he is now making better decisions, you decide to loan Johnny the money to buy the home. The title company you’re working with will prepare a note and mortgage to secure your loan, what could be easier, right?

That Darn Dodd-Frank! Your loan is probably in violation of this Act. Based on this violation, your note and mortgage may not be enforceable.

Dodd-Frank is federal legislation that came about as a result of the real estate crisis of the last decade. The Act created the Consumer Financial Protection Bureau (“CFPB”) and other laws that regulate all consumer loan transactions.

One of the other laws is the Loan Originator Rule. In general terms, if the borrower will use the home for residential purposes (whether a primary residence, a second home or a vacation home) then the person arranging the loan is defined as a “loan originator.” A loan originator must have a mortgage originator’s or broker’s license. Pursuant to the Act, any person who offers and negotiates terms of a residential mortgage is deed to be a mortgage loan originator. Unfortunately, for mom and dad above, there are no exceptions for a person, who is not a Seller, to secure a mortgage with a residential property.

The Act does provide for certain exceptions. Namely, Seller financing, these exceptions are as follows:

One property exception: A Seller may extend credit, secured by a mortgage encumbering residential property and is not considered a loan originator if:

(a) they are a natural person, estate or trust;

(b) they provide financing for only one property in a 12 month period;

(c) they own the property securing the mortgage;

(d) they did not construct or act as the contractor for the construction of a residence on the property;

(e) repayment of the loan must not result in negative amortization;

(f) balloon payments are allowed, however the term of the balloon is not clear. Most practitioners believe that no shorter time period than 5 years should be used.

(g) while the Act does not prohibit adjustable rates, a fixed rate is suggested. The Act has restrictions, limitations and caps on rate charges.

(h) the seller is not required to investigate the buyer’s ability to repay the loan.

Three Property Exception: A Seller may extend credit, secured by a mortgage encumbering up to three residential properties and is not considered a loan originator if:

(a) they are a natural person, estate, trust or an entity;

(b) they provide financing for three properties or less in any twelve month period;

(c) they own the property securing the mortgage;

(d) they did not construct or act as the contractor for the construction of a residence on the property;

(e) the loan must be fully amortizing and there are no balloon payments or structures allowed;

(f) while the Act does not prohibit adjustable rates, a fixed rate is suggested. In this context, limits and caps are required’

(g) the Seller is required to make a reasonable investigation regarding the Buyer’s ability to repay the loan. Although formal documentation is not required, the investigation should be done in good faith and the results should be maintained.

While other exceptions exist, they are very complicated and are not practical for ordinary Seller financers.

Good news is Dodd-Frank does not apply to every loan. First, it only applies to residential loans. So, if you’re dealing with vacant land, commercial properties, rental properties or properties used solely for investment purposes, Dodd-Frank simply does not apply. Moreover, Dodd-Frank does not apply to non-residential buyers. So, if the buyer is a corporation, limited liability company or partnership etc., Dodd-Frank will not apply and the loan can be made without consideration to its restrictions.

So, now that we know that mom and dad have a problem trying to help little Johnny buy his home, what are we to do?

One solution would be for the mom and dad (the lender) to purchase the property from the underlying Seller first. Then mom and dad as the Seller could sell little Johnny the home and take back the note and mortgage under the one property exception. Yes, the transaction costs would increase, but the creative closers at the Florida Agency Network will work with you to keep these costs down.

Another solution would be for mom and dad to work through a mortgage broker. The mortgage broker will be required to comply with all of the various lending laws and regulations. While the broker will likely charge a fee for this service, it is another option that will allow the transaction to go forward.

What Is A Rate Lock?

Mortgage rates change constantly through an unpredictable combination of government policies and economic conditions. This video explains the common term ‘rate lock.’

A “Rate Lock” is a guarantee that a lender will honor a specific combination of interest rates and points for a given period of time. A lock protects a buyer from rate increases but commits them to a higher rate if mortgage rates fall below the locked rate.

As of 2014, rate locks aren’t usually an option until a purchase offer for a specific property – new-home or resale – has been accepted by the seller. The borrower’s credit score, the loan-to-value ratio property type, location and other factors plus, of course, market rates and market conditions will also affect rate-lock decisions.

Decide whether to lock or “float” based on your capacity for risk and your best rational knowledge about construction and closing schedules. If your rate lock expires an extension might be available but both you and the lender will be looking at current mortgage rates to decide the best option.

 

What Should I Look Out For During The Final Walk-Through?

Well, as this story shows, this will likely be the first opportunity to examine the house without furniture giving you a clear view of everything.
Check the walls and ceilings carefully as well as any work the seller agreed to do in response to the inspection.
Any problems discovered previously that you find uncorrected should be brought up prior to closing. It is the seller’s responsibility to fix them.

The post What Should I Look Out For During The Final Walk-Through? appeared first on Florida Agency Network.

Source: FLagency


What Are “Home Warranties”, And Should I Consider Them?

You’ll see some pictures in this video to help you remember later, but essentially, home warranties offer you protection for a specific period of time, such as one year, against potentially costly problems like unexpected repairs on appliances or home systems which are not covered by homeowner’s insurance.

Warranties are becoming more popular because they offer protection during the time immediately following the purchase of a home a time when many people find themselves cash-strapped.

The post What Are “Home Warranties”, And Should I Consider Them? appeared first on Florida Agency Network.

Source: Flagency

What Are “Home Warranties”, And Should I Consider Them?

You’ll see some pictures in this video to help you remember later, but essentially, home warranties offer you protection for a specific period of time, such as one year, against potentially costly problems like unexpected repairs on appliances or home systems which are not covered by homeowner’s insurance.

Warranties are becoming more popular because they offer protection during the time immediately following the purchase of a home a time when many people find themselves cash-strapped.

What About A Home Located In A Flood Plain?

A flood plain is an area of land adjacent to a stream or river that experiences flooding during periods of high discharge. Watch this video and it’ll make sense.

If you live in a flood plain lenders will require that you have flood insurance before lending any money to you. But if you live near a flood plain, you may choose whether or not to get flood insurance coverage for your home.

Check the National Flood Insurance Program site  at FloodSmart.gov  for more information. And work with an insurance agent to construct a policy that fits your needs.

The post What About A Home Located In A Flood Plain? appeared first on Florida Agency Network.

Source: Flagency

What Does A Home Inspector Do, And How Does An Inspection Figure In The Purchase Of A Home?

As we show you in this video, an inspector checks the safety of your potential new home.

Home Inspectors focus especially on the structure, construction and mechanical systems of the house and will make you aware of only repairs that are needed.

The Inspector does not evaluate whether or not you’re getting good value for your money.

Generally, an inspector checks (and gives estimates for repairs on):

  • the electrical system
  • plumbing and waste disposal
  • the water heater
  • insulation and ventilation
  • the heating and AC system
  • water source and quality
  • the potential presence of pests
  • the foundation, doors, windows, ceilings, walls, floors, and roof.

Be sure to hire a home inspector that is qualified and experienced. It’s a good idea to have an inspection before you sign a written offer since once the deal is closed you’ve bought the house as-is.

The post What Does A Home Inspector Do, And How Does An Inspection Figure In The Purchase Of A Home? appeared first on Florida Agency Network.

Source: Flagency

What Is Earnest Money, And How Much Should I Set Aside?

Like the video shows, “earnest money” is money you put down to demonstrate your seriousness about buying a home. It must be substantial enough to demonstrate good faith and is usually between 1-5% of the purchase price though the amount can vary with local customs and conditions.
If your offer is accepted the earnest money becomes part of your down payment or closing costs. If the offer is rejected, your earnest money is returned to you. If you back out of a deal, you may forfeit the entire amount.

Is An Older Home A Better Value Than A New One?

Well, as this story shows, there isn’t a definitive answer to this question. You should look at each home for its individual characteristics.

Generally, older homes may be in more established neighborhoods offer more ambiance and have lower property tax rates. People who buy older homes, however shouldn’t mind maintaining their home and making some repairs.

Newer homes tend to use more modern architecture and systems are usually easier to maintain and may be more energy-efficient. People who buy new homes often don’t want to worry initially about upkeep and repairs.