Q–The day before the scheduled close of our home purchase, our Realtor insisted we reinspect the house. I’m glad he did. We found the seller left the house a mess. He removed several items that we thought were included, such as the dining room chandelier, above-ground swimming pool, living room drapes and the built-in dishwasher.
When our Realtor contacted the seller’s Realtor, the seller’s lawyer said if I didn’t close the purchase on time we would be in breach of contract. On the advice of our attorney, however, we refused to close until the seller either returned the items or gave us a credit. We’re at a standstill. What should we do?
A–I’m surprised your attorney has not recommended filing a specific performance lawsuit and recording a lis pendens (which means litigation is pending) against the home’s title. A lis pendens effectively prevents the owner from selling to another buyer or refinancing. Perhaps you need to consult a real estate attorney.
Q–On a recent vacation in Palm Springs, I learned there are many nice foreclosed condominiums for sale there. As I am thinking of buying a vacation condo, how would I go about buying a foreclosure? Are foreclosures a “good deal?” What are the pros and cons?
A–Buying a foreclosure property can be a good deal if you purchase far enough below market value to compensate for the risks of buying the unknown. But getting a foreclosure bargain takes work, so don’t expect it to be handed to you on a silver platter.
There are three basic foreclosure buying opportunities. The first occurs after the lender records, depending on state law, a notice of default or a lawsuit against the defaulting borrower. During this time before the foreclosure sale, you can buy out the owner’s equity, often for a few thousand dollars, and take title. Lenders will usually then let you reinstate the mortgage. But you might have to get new financing.
The second opportunity occurs at the foreclosure sale auction. If it’s a below-market-price bargain with lots of equity, you might encounter competition from “the 40 thieves,” that is, professional foreclosure buyers. They usually insist on buying at least 20 to 30 percent below market value. The big drawbacks of buying at the auction are (1) you don’t get to see the inside of the home before the sale and (2) you’ll need cash (or cashier’s checks) at or shortly after the auction.
The third foreclosure opportunity occurs after the foreclosure sale. If there were no bidders, the property goes back to the foreclosing lender. I’ve bought foreclosures at all stages. But I think buying from the lender with little or nothing down for the balance of the defaulted mortgage with the lender financing my purchase is best. However, you’ve got to get to the lender quickly, before the home is listed for sale at its full market value with a Realtor.
Q–We have a 6.875 percent interest rate, 30-year, $167,000 mortgage. But we can afford another $4,500 extra annual payments. Should we refinance with a 15-year mortgage? Or should we add the extra $4,500 each year toward principal payoff?
A–You’ve got a beautiful mortgage. Refinancing with a 15-year mortgage to save a fraction of a percent on the interest rate won’t be worth the hassle. Another drawback is that you then become obligated to make the higher monthly payments. With your current mortgage you can make extra principal payments but, if you find another use for your excess cash, you can fall back to the current minimum monthly payment.
Your current monthly principal and interest payment is about $1,100. Over the next 30 years, you will pay around $227,945 interest (plus the $167,000 principal). However, if you add $375 to each monthly payment ($4,500 per year), you’ll pay off your mortgage in about 15.5 years, save approximately $123,000 interest, and own your home 14.5 years sooner.
Q–A few years ago, my husband and I fell on hard times. After exhausting our savings, we got behind on our mortgage payments. We put our home up for sale. Just after the lender started foreclosure, we got an acceptable offer from a buyer. The judge ordered a “stay” of the foreclosure for 30 days to allow our sale to proceed. It closed, we paid all the past due payments and penalties to our lender as well as several thousand dollars in fees to the bank’s lawyers.
Our problem is, our credit report shows our late payments but also the word “repossession” in the comments section. We don’t have a problem with the late payments, but the word “repossession” is incorrect and derogatory. It makes obtaining credit difficult. The bank never repossessed our home. But the credit bureaus refuse to correct the wrong information. What can we do?
A–One easy alternative is to place a statement up to 100 words in your credit reports with the three major credit bureaus stating you paid your lender in full, there was no repossession, and the repossession credit report is wrong. I presume you’ve already written to each credit bureau asking them to remove the wrong repossession information. Try again. They now have 30 days to correct their errors. If that doesn’t work, you can sue each credit bureau in Small Claims Court for damages. Consult an attorney on how to prepare your case to prove actual damages for this incorrect information.
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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. You may need to consult a lawyer.
Write to Robert Bruss at Tribune Media Services, 435 N. Michigan Ave., Chicago, Ill. 60611.
