Crucial Parts of a Rent to Own Deal

Hi Folks,
   Thanksgiving week is upon us as quickly as I think I've ever experienced it before. Does anyone else feel the same way?

   "Rent to Own Homes" are an excellent vehicle for both buyers and sellers, however, some folks throw around those 4 words in a haphazard manner with no thought behind it. When that happens, it opens the door to bad things, and some bad folks trying to profit on the backs of innocent people.

   With our 10-year anniversary celebration ongoing, by now, you should be fully convinced that we take the phrase, "Rent to Own Homes", quite seriously, and we cannot stress enough just how important it is to sort out  all of the facts and responsibilities of all parties, just as in any other business contract.

   There are certain things that the Seller/Homeowner must do, as well as certain things that the Prospective Tenant/Buyer must do, but most importantly, these things must be coordinated between both of the parties. Ignoring these things are the sure sign of legal repercussions down the road, for both parties.

   In an aptly-named article, "Questions to consider if looking to rent-to-own", Joanna Jackson, a sales manager/associate broker with Jackson Realty, wrote up a concise breakdown of these specific items.

   Basically, as you might imagine, these run the gammut between Who fixes the toilet bowl, who pays for the handyman, if needed, and plenty of "What If?" scenarios.

   Jackson list the following items the seller will need to consider; Who will tend to the property, pay for routine maintenance, and pay for major repairs? Will you be managing the property, and if not, will you hire a real estate agent (and what are the costs of those two routes)? How much does it cost to set up and manage an escrow account for the portion of rent allotted to the down payment? What if the renters bail on you? Who keeps the money in the escrow account? If the buyers change their minds, what will be required to put the property back on the market for sale?

   Jackson also lists some of the items that need to be thought out by the buyers; How much, if any, of the rent is going to the down payment? What if you change your mind (How locked in are you if you change your mind?), What will it cost you to get out of the deal, if needed?, How long will it take to accumulate enough of a down payment to help you towards qualifying for a mortgage?, Who is responsible for paying the property taxes (and other local taxes) and insurance on the property?

   These are all very open-ended questions with no Right or Wrong answer, however, there are certain local "traditions" or procedures that vary from state to state and sometimes even county to county. I fully concur with Jackson, who states that when "considering a rent-to-own deal, seek legal advice from a real estate attorney". I go one step further and suggest an attorney that is local to the property, and thus, the local laws.

   Although these above-mentioned items can seem a thorn in your side, remember one thing; these are what make a Rent to Own Deal an actual "Rent to Own Deal", vs. a shady open-ended agreement with many gray areas, which can stop you from selling your home, or, can stop you from obtaining your dream home. Nail it down the first time so everyone walks away happy!

   Have you had any good or bad experiences with a Rent to Own deal? We'd love to hear which of these suggestions came into play during the process.

   From your team at HomeRun Homes, we wish you a safe and enjoyable Thanksgiving Holiday!

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Have a Great Weekend, and Happy Rent-to-Owning !
Regards,
Rob Eisenstein
HomeRun Homes - Rent to Own Homes, since 2002
"Located at the Corner of Technology and Real Estate"
Rent to Own Homes and Real Estate Blog for HomeRun Homes: http://blogging.lease2buy.com
HomeRun Homes Websites: http://www.lease2buy.com and http://www.homerunhomes.com


TAGS: #RenttoOwn #Homes #buyer #seller #contract #homeowner #tenant #property #maintenance #repairs #escrow #rent #sale #downpayment #qualify #mortgage #propertytax #realestate #attorney

Oh, Those Crazy Closings!

Good Morning,
   As we all get ready for Turkey overload, I'd like to welcome you back!

   Selling a home? If so, do you savor the day it sells? Is the thought of the sale going through as juicy a thought as the Turkey gravy dancing through your head? Not so fast. "Reaching an agreement doesn't mean your home is as good as sold", writes Margarette Burnette for the HSH.com website article, "4 weird closing glitches (and how to avoid them)".

The Glitches that Burnette writes about are:

1 Liens
2 Termites
3 Renters in residence
4 Parties don't have enough money for closing
* Bonus from my own personal experience - "In writing" !

   Liens, says Cynthia Jones, a real estate attorney with Horack, Talley, Pharr & Lowndes, P.A., a law firm in Charlotte, N.C., are "any unpaid bills you have from delinquent property taxes, homeowners association dues or even past remodeling work", in comments appearing in Burnette's article. For any such liens, Jones suggests that you can "try to work out an agreement with" the party you owe money to", i.e., a payoff.

   As for our wood-chewing nemesis, termites, Barry Hildebrandt, broker/owner of WCI Real Estate in Riverside, Calif, says that "Many home sale contracts are drafted with contingencies that allow the buyer to inspect the home before going through with the sale". What should you do? Make sure you inspect and clear out the little buggers in advance!

   If you have people residing in/renting your property, you will want them out by the Closing, and Jones suggests that you, "make sure your lease agreement provides enough time for your tenants to move before you close on the property and hand the keys over to your buyers".

   The next potential glitch can hit either the buyer, the seller, or both parties. Burnette suggests that buyers should still be "preapproved for their loans in order to help make the process go more smoothly", and warns that if the buyers have not "properly calculated how much they'll need to bring to closing", they could fall very short and it could impact completion of the deal, thus, the Closing.

   If sellers are underwater on their mortgage, says Jones. they may have trouble coming up with the funds to pay off their own loan at closing, however, she suggests that in order avoid such issues, make sure that both parties have a "clear understanding" of the amount of money that needs to change hands at the closing. Sound Advice.

   Here's my bonus tip, prefaced with a little story. When we purchased our home, we were quoted an interest rate 1/4 point below what the Closing papers said. You may scoff at a 1/4 point, but on $400,000, that's big money! To top it off, our mortgage guy was on vacation for the closing. I was able to have his secretary patch me through to him from the closing table, and I shed a piece of my mind on him. Short of delaying the closing (and delaying our movers, etc), we agreed on a compensation to us which turned out to be quite fair. Long story short; get everything in writing before the closing!

   Did we miss anything?

   May you have a blessed and joyous Thanksgiving, and I continue to be thankful for my family, friends, and the joy of writing these posts for your enjoyment. We will not be posting Friday, however, will be back with you during the following week.

Would You Like Our Blog Posts Sent Directly to your E-mail? Here's How:

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3. Check Your E-mail and Confirm Your Subscription...it's That Simple !

Have a Great Week, and Happy Rent-to-Owning !
Regards,
Rob Eisenstein
HomeRun Homes Blog: http://blogging.lease2buy.com
HomeRun Homes Websites: http://www.lease2buy.com and http://www.homerunhomes.com

TAGS: #closing #lien #termite #renter #realestateattorney #homeownersassociationdues #propertytaxes #payoff #underwater #mortgage #interestrate

Top 10 Legal Real Estate Terms You Must Know

Hi Folks,

   Welcome to Wednesday. Can someone pass me a cold beverage? All kidding aside, it's hot out there folks, so take precautions, wear light colors, drink plenty of fluids, etc.

   As a Buyer of a home, a Seller of a Home, a Real Estate Investor, a Real Estate Agent, etc, there are some terms you need to know before you step into a deal. We have provided a concise list of the most important terms that we need to know.

   The list is not in any specific priority order, as they are all quite important. Always remember to consult a local Real Estate Attorney before getting involved in any and all types of Real Estate arrangements.

1. Quitclaim Deed - This is a document that is used to, "clear up issues involving possible multiple owners of a property", per Sophie Martin, MBA, from the UNM School of Law, who says that with this special form of deed, "someone who might have an interest in your property agrees to hand it over to you."

2. Fee Simple Absolute - Per Martin, this is the, "best and most common ownership of property: full right to possess the property now and into the future."

3. Tenancy in Common - "When you and a partner (or partners) go in on a piece of land, you each own a portion of the whole which you can will or sell to others.", per Martin. Additionally, it means that, "each owner has a fee simple title to his or her share and that title can be sold or willed to someone else.", says Rick Snow, Broker/Owner of First Choice Realty. Snow adds that Joint tenancy commonly has, "rights of survivorship", where multiple parties may own property together and, "if one dies the remaining owners absorb the deceased parties share."

4. Title insurance - Snow describes Title Insurance as, "indemnity insurance against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage liens." Basically, a form of protection.

5. Escrow - "An arrangement made under contractual provisions between transacting parties, whereby an independent trusted third party receives and disburses money and/or documents for the transacting parties", as defined by Snow.

6. Default - Defined by Snow as, "the failure to comply with some aspect of the contract and either seller or buyer can find themselves in default under the provisions of the contract. Remedies to the non defaulting party should be spelled put on the contract."

7. Easement - A "permission to cross someone else's land.", which is referred to as the proper definition, per Mike Arman, a Real estate salesman and Mortgage Broker for over 20 years. Arman says that the easement holder does NOT own the land, "and cannot cut so much as one blade of grass without the owner's permission.". He also says that they cannot be unilaterally revoked or blocked (Arman says, "next stop is court."). Arman says he *specifically* suggest, "NOT purchasing ANY property which relies on easements or a chain of easements for access". Sophie Martin adds that the most common easements are held by utility companies.

8. Flood Zone - Deemed quite important, per Arman, who says that you need to be, "1,000% sure of the flood zone your prospective property is in - homeowners insurance does not cover flooding, and flood insurance will be expensive and WILL be required by your lender.". Arman says flood insurance comes from NFIP, "which is administered by FEMA (of Katrina fame), which is now a division of DHS".

9. Subject to availability of suitable financing - This is "Hand written on the contract for purchase and sale", says Arman, who says that this phrase can, "save the buyer's good faith deposit if suitable financing is not available - and the buyer defines "suitable financing", so it can also be used as an "out"". Arman says, however, that the problem is that, "sometimes decent financing simply is NOT available - and 99.9999% of buyers go looking for financing AFTER they've signed the contract and put up a (big) deposit. Lenders often won't waste their precious time on pre-approvals, come back when you've signed a contract so we know you are serious." Additionally, he adds, "Bingo - someone is going to be out five or ten grand when they can't get a loan because of a credit bureau error from 1937."

10. AS IS. - As described by Timothy G. Wiedman, D.B.A. Division of Economics & Business Doane College in Crete, Nebraska, "In an era of bank foreclosures and generally falling prices for real estate of all types, many properties are being sold "as is."". Wiedman says that Buyers should view the term as a, "warning to be cautious, and property being sold "as is" should be professionally inspected _before any commitments are made." He points to a a court case that can provide guidance, which is "Prudential Insurance Company of America v. Jefferson Associates, Ltd." which, he says, went to the Texas Supreme Court in 1995. Wiedman says that "When property is sold "as is," the buyer _may_ get a great deal. On the other hand, the buyer may later discover defects that will be expensive to correct -- and have _no_ ability to recover damages from the seller."

   I hope these terms have been helpful. I cannot stress this point enough: Always remember to consult a local Real Estate Attorney before getting involved in any and all types of Real Estate arrangements. Do you have any important Real Estate Legal Terms to add to this list? we'd love to hear from you.

Have a Great Week, and Happy Rent-to-Owning !
Regards,
Rob Eisenstein
HomeRun Homes Blog http://blogging.lease2buy.com
HomeRun Homes Website http://www.lease2buy.com

TAGS: #realestateinvestor #legal #Deed #titleinsurance

Do Banks Really Forgive a Mortgage Balance After a Short Sale?

Hi All,


   I hope you had a great week, and if you're in the bulls eye of the next snowstorm as we are, I ask you to be careful and drive slowly !

   We recently received the same question from a few different people, and we would like to address that question today. We were asked approximately, "how often is a mortgage balance "forgiven" after a Short Sale?". We posed a few related questions to some professionals with quite a bit of experience, and we'll cover each question along with the answers below.

Question #1: "Will the house loan company forgive an outstanding balance after a home is sold on a short sale"

   David Bartels, an agent and a short sale negotiator, tells us that, "Absolutely. This happens almost every time on transactions we negotiate". Greg Cook, a Mortgage Professional, says that, "In a short sale when the balance of a mortgage debt is "forgiven", the lender almost always will issue a 1099 for that amount.", and continues to say that, however, the "the Mortgage Debt Forgiveness Act of 2007, provides for no tax liability on owner occupied properties up to $2,000,000. So while the debt may be forgiven there is no income tax liability." Cook adds that, "Whether or not a lender chooses to pursue a deficiency judgement for that amount is 1) at their discretion (and) 2) subject to state laws, and this can vary from state to state". Robert Nagle, an attorney in Phoenix, says that he has, "represented over 200 homeowners regarding strategic default. In Arizona, due to the anti-deficiency statutes, most first mortgages (purchase money and refi) forgive deficiencies, and certainly purchase money seconds do, too."

Question #2: "Are there any "rules" that say what amount, if any, will be forgiven?":

   Bartels responds and says that, "Each lender has their own guideline they use to determine whether or not to pursue a deficiency balance. They are not disclosed to anyone. Pursuit of deficiency judgment varies widely and is determined by the investor (owner of the loan).". Additionally, he says that, "For the most part the lender you are negotiating with just services the loan. They do not own it and take direction from the actual investor (owner or the loan)."

Question #3: "Do these rules differ from state to state?":

   "Yes", says Bartels, "CA for instance is a no-deficiency state. This means a lender cannot pursue a deficiency on short sales in CA. On Jan 1 this was expanded to include non owner occupied homes. Exceptions are some(times) made if the homeowner took cash out and used it for something other than improvements on the subject home."

Question #4: "Do they differ between a first house loan and a second house loan (i.e. first is paid off, but a balance remains on the second)?":

   Bartels reminds us that, "A short sale cannot occur unless 2nd releases the lien on the property. This is done via the short sale negotiation. There is no circumstance where a short sale could occur, but the 2nd lien holder does not release the lien.". Cook adds that, "Second mortgages are an entirely different game and will depend on lender and state law.", and adds that, "I was on a conference call with the head of loss mitigation (western division) for Bank of America and he said he had not heard of one lender pursuing a deficiency judgment. Reason? "You can't get blood from a turnip" and pursuing the judgment only increases costs to the lender and the former homeowner is likely to BK out of it anyway." Nagle chimes in on the equity second loans, and says that, "The rule of thumb that I feel the lenders are following is 10 cents on the dollar and a full release IF the borrower does a short sale. The gloves come off if the home has gone through foreclosure."

Question #5: "If it is not forgiven, what happens then?":

   Bartels says that the short sale negotiation and the release of lien negotiation are separate, and that, "When we get an approval that is conditioned on a cash contribution or a deficiency, we have a 2nd negotiation to pay the amount or pay an amount in exchange for no deficiency judgment. There are several ways to do this. We have been successful 100% of the time eliminating deficiency judgements post short sale for our clients so far." Cook says that, "In California, there is no deficiency judgment allowed on owner occupied properties for the loan used to purchase or renovate. As of today, refinanced loans may still be subject to deficiency judgment, but that is likely to change once the new legislature gets their feet under them (it passed in the last session but was vetoed by the Governator)."

   Overall, if you are facing a short sale as an option, it is important that you speak with your mortgage company (all of them), obtain approval for the short sale, consult an agent and also a Real Estate attorney. Make sure you have a plan from A to Z in place before setting it in motion.

   Have we missed anything? Comments? Suggestions?

Have a Great Weekend, and Happy Rent-to-Owning !
Regards,
Rob Eisenstein
HomeRun Homes Blog http://blogging.lease2buy.com
HomeRun Homes Website http://www.lease2buy.com

Tags: #shortsale #foreclosure #lossmitigation #loan