Waller, TX Real Estate Blog

>матрациar it all the time from sellers, “I’m selling my house as-is”.  Well, Mr. Seller, what if the buyer accepts the as-is provision, but the appraiser says the front porch handrail needs to be replaced?  What if the buyer’s mortgage company won’t lend on the property unless there is a clear termite and moisture inspection and your home needs a rotted board replaced in order to get a clearance?  Do you REALLY want to kill an entire sale over a relatively inexpensive repair?

In most cases, if you truly MUST sell strictly “as-is”, your buyer pool will be limited to cash buyers, rehab loan buyers and private investor funded buyers.

If you want to keep your buyer pool as large as possible, consider being more flexible so you can work with VA, FHA and conventional buyers.  To limit your liability for repairs, you can cap the amount you are willing to spend; just keep in mind that if the buyer can’t come up with additional funds for necessary repairs, you could lose the deal.

Also, consider the “as-is” connotation.  The first thing that comes to mind is, “What’s wrong with it?”  ”What is the seller hiding?”.  That’s just not a good way to start a transaction.

Functional Obsolescence, with regards to real estate, occurs when there is a loss of building utility.  This can occur with a home that is too lavish or improved for a neighborhood, or on the other end of the spectrum, a home that is much smaller or under-improved for an area.  Functional obsolescence can also occur when a property no longer meets the basic needs and wants of a certain society; such as a 2 bedroom, 1 bathroom home or a home heated with coal. Functional obsolescence can be curable or incurable depending on how difficult it is to overcome the obsolescence.

Stylistic Obsolescence is a home which does not conform stylistically to the neighborhood or incorporates some sort of material that is no longer manufactured or utilized.  It can be a contemporary home in a traditional neighborhood or a home with a EIFS exterior that is no longer used.  Stylistic obsolescence is almost always curable, but it is not always economically feasible to do so.

Economic Obsolescence is rarely curable.  This occurs normally with older properties and is usually out of the control of the owner.  Economic obsolescence can occur when commercial zoning encroaches onto residential or when a road widening diminishes the front yard of a home.

It’s important to understand obsolescence and the effect it can have on the value of your property.  In some cases, especially with stylistic obsolescence, it may take a third party to inform you of the status (just like when you wear your favorite skinny tie and leisure suit).

“Subject to” (as it relates to real estate) refers to a method of purchasing a property while leaving the seller’s existing mortgage(s) in place.

The seller deeds the property to the buyer, who agrees to make the existing mortgage payments on the property.  In most cases, the seller is not released from liability on the mortgage.  In some cases, the agreement may also include the provision that the buyer either sell or refinance the property within a certain period of time.

What is the main benefit?  The seller’s costs to sell are usually very small with this type of transaction.  It’s also easy to sell this way as the buyer does not need to qualify for a mortgage and incur a high cost for closing on the property.

The main negative?  Most mortgages contain a due on sale clause.  This allows the lender to call the note if there is a transfer of title on the property.  If the lender is made aware of the sale, they could require payment in full and the original owner (the seller) is liable party.

As the economy has wreaked havoc on the second home market, some buyers are seeing an opportunity to own something they might not otherwise be able to afford. Others are finding themselves “stuck” with 2 properties and not being able to sell one.

The IRS allows for up to 2 residences for a taxpayer to deduct mortgage interest. Also of note is what qualifies as a second home:

1. House
2. Townhouse
3. Condominium
4. Boat
5. RV
6. Mobile home
7. Trailer

The requirement states that the second home must have a sleeping space, toilet and a place to cook. In addition, the second home must be at least 50 miles from the primary residence.  (Note about the 50 mile rule -  say you commute 45 miles to work each day, a second home could be a “crash pad” near your employer but 50 miles from your home).

Can you rent your second home and still take the mortgage interest and property tax deductions? Yes! As long as you use it for 14 days or 10% of the time it is rented, whichever is greater. Another benefit:  if you rent your second home out for 15 days or less and for fair market value, the rental income is not taxable.

Of course, speak to a qualified accountant to answer any questions or concerns you may have regarding a second home.

Negative amortization occurs when the payment made by the borrower does not cover the amount of the interest incurred.  The difference is added to the loan amount.

Traditionally, negative amortization loans have been used by lenders to allow for a lower monthly mortgage payment in the beginning of the loan period.

So, why would someone want this type of loan?  Well, it may be an option for a couple where one person is presently employed and the other is in school, graduating in a year or so and will be employed, bringing the household income substantially higher.

In the 1980’s when interest rates very very high, negative amortization loans offered borrowers the ability to keep their payments low and ride the market hoping that in a few years, they could refinance into a lower interest rate.

In our current market of low mortgage interest rates and lenders having stricter lending guidelines, negative amortization loans are very rare; however, there are still some lenders offering the product.

The Due on Sale Clause, or Acceleration Clause, is a clause in a mortgage which states that if there is any transfer of ownership or interest in a property, the mortgage can be called and immediately due to the lender.  With the exception of VA and FHA mortgages (which are generally assumable by a qualifying party), almost all mortgages have a due on sale clause.

Keep in mind that generally, this clause is a contractual option by the lender.  This means that the lender may or may not decide to call the loan due once notified of a transfer in title or ownership interest.  If the loan cannot be paid, the lender has the option of beginning foreclosure proceedings.

A “sale” is not the only thing that can trigger the due on sale clause.  Sometimes, a long term lease, lease-purchase agreement, or even a quit-claim deed can trigger the clause.

The reality is, in today’s market, a lender would be nuts to call a loan when the payments are being made in full and on time.  And usually, they don’t.  That being said, we do live in a world where nutty things are done….

Depending on applicable state laws, it may be possible to purchase a property “subject to” the existing mortgage by creating a land trust when transferring title.  Obviously, it is highly recommended that one consult with a qualified attorney before entering into such a transfer.

With a simultaneous closing, 2 transactions take place on closing day with regard to the subject property.

In the past, this transaction referred to a seller financing technique where the seller financing note is purchased at the closing table to allow the seller to obtain their proceeds quickly, rather than over a period of years.

In recent years; however, a simultaneous closing can also occur when an investor wholesales a property.  For example, buyer A enters into a sales agreement with seller to purchase seller’s property for $25,000.  Buyer A decides not to rehab the property, but instead, to sell to Buyer B for $30,000.  Sometimes, Buyer A will just assign or sell his contract to Buyer B; however, unless there is a provision in the contract permitting the Buyer to do so, Seller may not allow the assignment. That is when a simultaneous closing may be the solution.

Next, keep in mind that some states do not allow simultaneous closings and some title companies will not conduct them.

There is not one specific definition for this type of mortgage as banks offer many different variations of this loan.  Also, construction to perm loans can be done for new construction or remodeling.  The basics are:

A one step or two step loan process.  With the one step process, the initial construction loan is then converted into the longer-term mortgage.  With the two step process, one loan is provided for the construction and then another loan is provided upon the completion.

Depending on the loan type selected, interest rates can vary greatly.  Some people choose a floating rate, others choose to pay for a lengthy lock and guarantee a fixed rate.

The two step process usually incurs added expenses for the homeowner as they have two closings and thus, two sets of closing costs.  That being said, a benefit of the two step process can be that the homeowner can shop for the best possible terms just a few weeks before closing on the second loan.

The wealthier the investor, the more money they plan to put in real estate compared to the amount they have earmarked for stocks and bonds, according to Barclays Plc global survey. Investors believe real estate will yield better returns.

Twice as many people with more than $800,000 to invest plan to increase their investment in commercial and residential property compared to those who plan to reduce it, Barclay’s study reported.

Overall, investment in real estate among wealthy individuals is set to rise to 30 percent of the average portfolio from 28 percent now, according to the survey. That excludes properties used as a principal residence.

Foreclosures declined 8 percent in November compared with October, but were still up 18 percent from November 2008.

This was the fourth-straight month that U.S. foreclosures have declined since hitting an all-time high in July, according to online foreclosure marketer RealtyTrac.

Default notices, an indicator of coming foreclosures, also were down 8 percent from October, but up 22 percent from November 2008. Bank repossessions were flat from the previous month and down 2 percent from November 2008.

“We don’t really believe the underlying problems have been resolved,” said Rick Sharga, senior vice president for RealtyTrac. Many borrowers, he told the Associated Press, “simply aren’t going to qualify” for government and mortgage servicer help.

States with the highest foreclosure rates are:

* Nevada
* Florida
* California
* Arizona
* Idaho
* Michigan
* Illinois
* Utah
* Maryland
* New Jersey

Four states account for more than 50 percent of actual foreclosures: California, Florida, Illinois, and Michigan.