WORD: Contingency Clause and Contingency Fee

And the WORDS for Today are...

Contingency Clause – refers to a clause which may be written into a purchase agreement which basically says “we will move forward with the purchase once the contingency we identified has been satisfied or removed.”

Contingency Fee – any fee for services provided where the fee is only payable if there is a favorable result.

Contingency fees are fees which are to be paid only in the event of an occurrence in the future. For instance, a real estate broker’s fee is paid only if the listed property is sold or leased. (An exception could be included in the contract that allows some other payment arrangement.) A great example of contingency fees are the fees charged by attorneys who handle negligence (or similar) lawsuits which are not due to be paid unless the attorney wins the suit and damages are collected.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased atwww.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: Contingency

And the WORD for Today is...

Contingency – the completion of an action or promise hinges on something else happening prior to that. The second action will NOT occur unless or until the first action has been completed. For example, “buying the house is contingent upon my company providing the usual Christmas bonus.” Quite simply, no bonus (or less than the USUAL bonus), no house.

Contingency also most commonly means some stated event which must occur before a contract will be binding. For example, an offer to purchase a home based upon the buyer’s ability to sell their previous home.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased atwww.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Q&A: Is the Seller Responsible for back taxes?

Q: When selling their home, is the seller responsible for paying the back taxes or tax liens?

A: Short answer: YES, to both.

Individual sellers of real estate are required to provide a clear chain of title and that requires that any back taxes or tax liens would have to be satisfied prior to or at the closing. In order to demonstrate that there are no outstanding debts against the property, the seller signs a vendor’s affidavit which affirms that there are no outstanding obligations which have not been paid. Additionally, they provide the purchaser with a general warranty deed further guaranteeing that a clear title has been conveyed.

Buyer Beware—Bank-owned sellers

The use of the word ‘their’ in the question above indicates you are talking about buying a home from an individual rather than an REO (bank-owned property) from an insurer such as HUD, VA, Fannie Mae or Freddie Mac. While these insurers are required to pay back taxes and Federal tax liens before they transfer title, they are NOT required to cover all liens and consequently you will most often receive what is called a “special warranty deed”, “sheriff’s deed” or “trustee’s deed”. Irrespective of what it is called, any of these types of deeds will be transferring “marketable title” but not necessarily “clear title” to you. You owe it to yourself to get clarity on all the words highlighted in this section before you purchase a home which is being offered for sale by an institution rather than an individual.

Pass it on! your ‘contingency’ and move to a closing.

What are contingencies?

They are stumbling blocks which must be addressed before you can close on the new home purchase. It might be that you have a home you must sell first. It might be that you need to get money from a 401K and have not yet applied for that to be released. You might need to pay off some outstanding judgments in order to get final loan approval to complete this transaction. It could be that you are awaiting a final answer from your employer about a possible job transfer or any one (or ten) other things.

Most important is to discuss with your agent whether or not there are conditions in the content of your offer, (probably under further conditions) which grant the seller permission to continue to show the home. If there are NO contingencies then I would say the home should have been pended and no, there should be no further showings.

Real estate contracts are somewhat complex but you really can understand them if you take the time to understand what the words really mean. Read your specific contract and see what they can and cannot legally do until the closing actually occurs. Best of luck.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Short Sale Fast Facts for Consumers

Short Sale Fast FACTS for Consumers

1. Short Sale could be your solution—but it has some pitfalls

Get informed and Get started

2. Short Sale is an Option Not a RIGHT

You will need to “qualify” for the option to dispose of the house by using a short sale.

Most lenders use the same basic criteria—what I call the “Universal Hardship Test”

• Was the default ‘trigger’ something beyond your control
• Did the trigger lead to an increase in expenses or a decrease in income?
• Are you still an occupant in the home secured by the loan?
• Have you depleted all of your assets available to make mortgage payments?
• Are you willing to pull together the documents required by the lender/guarantor to determine if they believe you qualify for a workout?
• If there is a co-borrower, are both parties committed to this workout attempt?

3. Finding a competent REALTOR could be difficult

A short sale is a Speciality transaction. You need to find a

REALTOR who:

• Works full-time—yes, even in today’s climate
• Is experienced in short sales (means they closed)
• Is familiar with your area and price point
• Whom you feel comfortable with
• Who is able to demonstrate to you what the value of your home is compared to similar homes in the neighborhood
• Has the ability to effectively market your home
• Is pleased to share with you that they have had specialized training in Short Sales (I mentioned this last, because if they haven’t mentioned by now, it is because they don’t have any—Not a good sign)

4. You can list the home for short sale—BEFORE the lender approves the

short sale—

**As long as you indicate that “all offers are subject to lender approval” This should be included on your listing contract, on the seller disclosure form and within the comments on the MLS sheet

**You can’t ACCEPT and CLOSE without the lender’s approval but you don’t have to wait to get started. Why not start today? Is your house ready? Do you have the documents needed for the hardship package?

5. Might leave you with a deficiency—which could be used to get a judgment against you

Negotiate to get the lender to agree to “waive their right to a deficiency judgment” as part of the short sale approval letter.

You should NEVER assume that because the lender agreed to the short sale that they have waived their right to pursue you for the shortage.

If it’s not in writing—signed by an authority—you should expect them to pursue you for the shortage.

6. Foreclosure process—will most likely continue, even while you have the house on the market for sale

FHA loans which are subject to HUD regulations—require that the foreclosure process STOP while the home is marketed for short sale

Foreclosure action continues on ALL other loan types

7. Listing Termination—can be mandated by your lender when you are in default

The Lender is not a party to the listing contract and you might logically assume that therefore they had no say so about what does or does not happen with the attempt to sell your home.

Unfortunately, you would be mistaken.

Government guarantors, HUD, VA, USDA, Fannie Mae, Freddie Mac, and Rural Development have the right under Federal regulations to compel you to withdraw the listing IF:

You are cooperating with showing the property as a show of ‘good faith’

Title issues are uncovered which would prevent the transfer to a new buyer

The condition of the property is such that a sale is unlikely

You have failed to comply with request for information to determine your eligibility for a workout. Remember: This is an Option, not a RIGHT.

8. Second Liens can present a challenge—also known as a ‘stumbling block’

Second lien holders seldom initiate foreclosure; they block short sales all the time with their obstinacy. You cannot transfer real estate to a new buyer when there is a second lien holder without their cooperation.

They must either:

a. Release the lien

b. ‘Lift’ the lien and permit the closing

Usually they can be enticed to do one of these things, preferably the first. Many will accept a token payment as a settlement for the obligation if foreclosure is imminent and they stand to get nothing after the lien is wiped out. Other they may agree to an unsecured loan in exchange for

their cooperation.

Your lender may make a contribution toward getting this second released, especially if you have a government backed loan. Their regulations have a stipulated amount set aside for this purpose. Get your facts and get going.

9. Tax Implications—Didn’t Your REALTOR mention that?

When there is a deficiency (difference between what you owe on the house and what the new buyer is willing to pay for it) you are taxed on that amount as though you received it as a gift.

IRS rules require that the lender provide this information directly to IRS for tax purposes.

You should NEVER assume that because the lender agreed to the short sale that they have waived their right

10. Now about signing those papers…….WAIT

I believe strongly that the seller of a property which is upside down would do well to pretend their fingers are broken once they have signed the listing contract and seller disclosure form until Mr. Smitherman, the supervisor at the bank, has:

a. Approved their short sale, with all continguences

b. Given them permission in writing to sign something

As a trainer, I take the position that ‘lender approval’ means getting the lender’s approval before you agree to anything with a potential buyer.

That means do not sign a purchase agreement, no matter what contingency clauses have been included by a so-called sharp REALTOR. Do not sign a counter offer. I said, ‘pretend your fingers are broken until the supervisor at the bank tells you to sign something.

If you sign BEFORE he tells you to, you are agreeing to terms which he has not yet agreed to. You cannot perform (or deliver the deed to the house) without his agreement. He may:

a. Select a difference ‘potential purchaser’

b. Counter and ask for a lot more money

c. Go ahead and foreclose, then you have nothing to sell.

Don’t get ahead of the bank. “Lender approval required” means the bank gets to decide everything: to whom we will sell, and for what amount, on what terms. Don’t allow yourself to be lulled into thinking it’s okay to make an agreement and then get his approval. That is risky business. Remember, your fingers are broken.

Please share today’s blog with someone you know who is struggling and not sure what steps to take next.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)