Q–I want to thank you for your frequent advice to make a small down payment when buying a home. Almost a year ago, we bought a very nice home with a 10 percent down payment and a 90 percent mortgage. All was going well until a freak storm caused our home to slip down the hill. It was declared unsafe by the city. Our homeowner’s insurance company says our “super deluxe all-inclusive” policy doesn’t cover this earth movement loss.
We’ve decided to walk away and let the mortgage company deal with the problem. They sent us threatening notices and we realize our credit will be hurt. But we’re thankful we followed your advice and only lost our 10 percent down payment. What would you do in a situation like this?
A–While I sympathize with your situation, I’m glad to learn you only made a 10 percent down payment and didn’t have a major portion of your financial assets tied up in a home that became virtually worthless.
If I was in your situation, I would also probably walk away and let the mortgage company take title to the house.
Your problem is that, in many states, depending on the circumstances and type of mortgage, the lender can seek a deficiency judgment against the borrower for its loss. Some lenders pursue deficiency judgments, others don’t. Please consult your attorney as to the best course of action.
Q–I remember when home mortgage interest rates were high, the mortgage lenders used to give discounts to borrowers who paid off their low interest rate home loans.
We have a $38,500 mortgage with a 6.5 percent interest rate, which we can afford to pay off. I wrote to the lender asking how much discount we will receive, since they can loan the money at a higher interest rate, but was told no discount will be given. Should I insist on a discount for prepaying this mortgage?
A–No. Institutional lenders don’t care if you prepay your mortgage. They no longer give discounts for early payments. Only if there is a great disparity between the loan’s interest rate and the market interest rate is there any incentive to give prepayment discounts. That situation does not currently exist.
Q–At a cocktail party, I met a woman who invests in real estate. Apparently she has done very well by investing in probate properties. She has a technique of following the death notices in the newspaper, checking the court files to see if the deceased owned any real estate and, if so, contacting the estate to see if they want to sell.
Although this sounds like lots of work, she said the bargains are fantastic if she is patient. The best bargains, she said, occur when the greedy heirs want cash and are willing to sell far below market value. Do you think probate properties are a good buy?
A–I’ve bought my share of probate properties, but haven’t found them to be exceptional bargains. Once I made an offer to buy a house but didn’t succeed because the 29 heirs couldn’t agree what to do. I pity the real estate agent who had the listing on that house.
If you wish to make a career of buying probate properties, you might do as well or better than your new cocktail party friend.
Since the heirs paid nothing for the inherited property, if they need money or are willing to finance your purchase, you might buy some bargains. It won’t hurt to learn the probate procedures..
Q–At a Realtor’s Sunday open house, we found a home we wanted to buy, but we thought it was vastly overpriced, based on recent home sales we know about in the neighborhood. The Realtor was not very friendly when we mentioned these nearby home sales.
When we told her we wanted to make an offer, she asked the price we were offering. We told her. She said she wouldn’t even present such an offer to the sellers, so we dropped the matter.
But the house is still for sale and is vacant. We think our offer has a chance. How can we get the listing agent to present it?
A–Real estate agents must present all written offers to their sellers, no matter how ridiculous they might seem. The legal reason is that the offer is a material fact, which must be disclosed to the home seller under the agent’s fiduciary duty to disclose all facts.
However, since you know the listing agent is unenthusiastic about your offer, which, I presume, is substantially below the seller’s asking price, I suggest you find another agent to prepare and enthusiastically present your offer.
Expect a counteroffer. But negotiations back and forth might result in a sale. Until you make your initial offer, you’ll never know at what price you can buy that home.
Q–I plan to rent my house for three years while I am on a temporary job assignment. A nearby Realtor says she will manage my house for a management fee of 15 percent of gross income. This seems very expensive. Is such a high fee customary?
A–Everything is negotiable. Ask what the 15 percent management fee includes. Are there any extras, such as a leasing fee when a vacancy occurs?
You can probably find less expensive management, but the quality might be lower, too. Be sure to ask for references from the Realtor’s current and previous property owners before signing a management agreement. Also check on her management experience.
Q–You have often said the best financing is a seller carryback mortgage. But when I mentioned this to a Realtor with whom I have been working to buy a home, she said home sellers here won’t carry back mortgages.
Is that true? How can I convince a seller to carry back a mortgage so I don’t have to pay all those mortgage lender fees?
A–Sellers in every city, town and village will carry back mortgages for their buyers. But you’ve got to ask.
The best candidates for seller financing are often free-and-clear, vacant houses being sold by elderly sellers. These people frequently need extra retirement income. They’ve never thought of carrying back a mortgage until they see your purchase offer specifying the mortgage terms you want the seller to carry.
I’ve found it’s a waste of time to ask the realty agent if the seller will carry back financing. Even when the agent says no, I make a seller financing offer anyway. The listing agent rarely knows when the seller will finance the sale. They are usually more surprised than the buyer when the home seller says yes.
PLEASE NOTE: Real estate laws vary from place to place. Be sure to check the laws of your state and municipality before making decisions on real estate matters.
