It's a Jungle Out There

Lots of buyers looking, not a lot of inventory.  Bidding wars, multiple offers, lost opportunities.  The March 20, 2016 Business section of the Sunday Boston Globe has much to say about this topic.  Take a look.  Home Buyers' Blues.

Home Inspections

You are looking to buy a house.  You find something you love, and to your pleasure and possible amazement, your Offer is accepted.  So what comes next?  The home inspection.  The buyer wants to know absolutely everything about the property and be informed of all possible defects.  The inspector wants to find everything and cover their tail so that the buyer doesn't come back to them later alleging negligence for missing something.  (This often leads to inspectors flagging small issues that turn into big issues during negotiations.)  The seller, of course, doesn't think there is anything wrong with the property, and questions the inspector's conclusions.  So what happens?  The parties (usually via the brokers) will enter into negotiations to try and resolve their differences and come to some agreement about what seller will repair and what seller will refuse to address.  In some cases, seller will agree to perform, or have performed by a hired worker, a specific task.  In other cases, when seller doesn't want to get involved in the actual work, the parties will negotiate a dollar amount which seller gives buyer as a credit at closing to cover the defect.

Often, the buyers will see the inspection as an opportunity to negotiate price reductions or free repairs from the seller.  In truth, that is not the purpose of the inspection.  Generally, a buyer should be worried about major issues, and not whether the faucet leaks.  I often counsel clients that the issues to be addressed should be only of the sort that seller would have to repair in order to sell the house to anyone.  This includes things like a defective boiler or HVAC system, a leaking roof, the presence of  asbestos, mold, radon or other such substances, substantial rotting, or structural defects.  The seller is likely to be uninterested in loose toilets or dryer hoses, missing screens on windows and small matters of that sort.  Buyers should pick and choose those issues that are most serious and most important.

In a seller's market (where we are now), the seller is less likely to agree to address any inspection issues at all, because there are probably four more offers in the wings.  In those cases, the purpose of the inspection is only to give the buyer information and not to use as a point of negotiation.  Based on the inspector's findings, is the property sound?  Are the repairs limited in scope and within budget for the buyer to repair?  Or are there hidden defects that make a buyer choose to walk away?

Except in cases of substantial defects, buyers are best served by examining the home inspection for informational purposes, and not for the opportunity to extract concessions from the seller.

Beware! You may be bound by an Unsigned Purchase and Sale Agreement

A recent decision in Massachusetts Superior Court has held that a series of emails between and buyer and seller containing all of the material terms of an offer to purchase, and indicating acceptance of those terms, was sufficient to create a binding contract between the parties, even though the actual purchase and sale agreement was not executed by the parties.  In reaching this finding, the court applied principles of the Uniform Electronic Transaction Act to the ancient statute of frauds law (which requires a contract for the transfer of real estate to be in writing), and concluded that the conduct of the parties in using email to negotiate the terms of the transaction constituted an agreement to conduct the transaction by electronic means.  Since the exchange of emails contained all of the material terms of the deal and the parties expressed an intention to be bound, the Court found that an enforceable contract existed despite the lack of an actual executed purchase and sale agreement.

This case follows a series of prior decisions in which Offers to Purchase have been held binding in cases where the terms are sufficiently complete and definite and the parties intended to be bound at the time.  Many parties erroneously believe that an Offer to Purchase, and now written email negotiations, are just a formality, or an expression of intent, and that a binding contract is created only upon the execution of a final written purchase and sale agreement.  This recent case adds yet another twist to the proposition that the parties may be bound even in the absence of a signed P&S if their email negotiations are comprehensive enough. 

So buyers and sellers beware:  if your Offer, and now your email negotiations, contain all of the material terms and evidence an intention to be bound, you may indeed be bound to such agreement even if you never reach the point of executing a purchase and sale agreement. The law appears to be catching up to the 21^st  century, and some very ancient principles are now being interpreted in the context of modern technology.

New Massachusetts Homestead Law

Governor Patrick has just signed into law a new bill which clarifies and improves the Homestead protections afforded to Massachusetts homeowners. The new bill provides an automatic protection of up to $125,000.00 of equity in a primary residence against claims of most creditors. Formerly, Homestead protection was available only to those homeowners who filed a Declaration of Homestead at the Registry of Deeds. Under the old law, the filing of a Declaration of Homestead protected up to $500,000.00 of equity against claims of creditors. This $500,000.00 protection is still available by filing a Declaration of Homestead, but even without a filing, you are now automatically protected up to $125,000.00. In addition, the new law clarifies that the Homestead protection remains intact if the property is conveyed to another family member, or to a trust for estate planning purposes, or if you refinance your home mortgage. This long-overdue and highly welcomed law goes into effect in mid-March. 

CONSIDERATIONS WHEN BUYING NEW CONSTRUCTION

If you are buying a property currently under construction, there are several additional factors to take into account beyond those of the customary purchase of an existing property. Following are some considerations which should be addressed in any contract for the purchase of new construction:


1. TIMING: the builder will project a completion and closing date which will be incorporated into the purchase and sale agreement. Notwithstanding, home builders generally provide the right to extend a completion and closing date for periods of up to 120 days from the originally projected date to protect against construction delays. If you are buying new construction, be sure you have a contingency plan for storage of your possessions and somewhere to live in the likely case your closing is delayed.


2. INSPECTIONS: a purchase and sale agreement should always give the buyer the right to do a comprehensive inspection of the property at the completion of construction but prior to closing to ascertain that the property has been constructed in accordance with all plans and specs. Once you close, you lose the right to object to property condition except as may be covered by a builder’s warranty.


3. “SUBSTANTIAL COMPLETION” AND UNFINISHED WORK: It should be a condition of any purchase and sale agreement that the builder deliver a final and unconditional Certificate of Occupancy from the building department before closing occurs. Without this, the property is not certified as complete or legally habitable. Yet even if a C.O. has been issued, it is possible, even probable, that there may be a “punch list” of smaller items not yet finished which will be completed after the closing. In your final inspection, you and the builder should develop a “punch list” of unfinished work so all parties have a common understanding of what remains. Ideally, for maximum protection, a buyer should seek a holdback from the builder’s sale proceeds in an amount at least equal to the value of the unfinished work (one and one-half times the value is better), with such funds being held in escrow by buyer’s attorney until the punch list is completed. Many builders, however, will not agree to holdbacks in any circumstances. In that case, the buyer is limited to a contractual obligation on the builder’s part to complete the punch list within a stated period of time following closing.


4. COMMUNICATION: it is imperative to keep in regular communication with the builder and conduct periodic inspections to ensure that the property is being completed as agreed. It is much easier to fix a problem as it occurs than to have to go back much later and try to remedy non-compliance.

5. WARRANTY: always seek a written one-year warranty from the builder covering structural and systemic matters and warranting against any defects in materials or workmanship.


If you are buying new construction, keep these matters in mind, and seek the assistance of a qualified attorney to negotiate your purchase and sale agreement so these items are incorporated into the contract.

Property Owners Beware

I have posted about this in the past, but it bears repeating. In the mail this week I received an official-looking notice from an operation called National Record Service Inc. It referenced the official recording data for my house deed, and went on to state that "The U.S. Government Federal Citizen Information Center website recommends that property owners should have an official or certified copy of their deed." For the low one-time price of just $59.50 (which generously includes shipping and handling charges), National Record Service Inc. will obtain and send you a copy of this valuable document.

People, please DO NOT be taken in by this scam. Copies of your deed are available FOR FREE (or for a nominal photocopy charge) at the registry of deeds in the county in which your property is located. It is nothing short of highway robbery to part unsuspecting homeowners from $59.50 of their hard earned money for this purpose. This kind of stuff just makes my blood boil.

Underground Oil Storage Tanks

If your home is heated by oil heat, you should be aware of a new law going into effect on July 1, 2010. The the "Oil Heating System Upgrade and Insurance Law" requires homeowners with oil heating systems that were installed before 1990 to install either a sleeve around the pipe that feeds the burner or a safety valve to prevent leaks. The new law also allows all homeowners to buy insurance coverage for the cleanup of a leak if their system is in compliance. If you have an oil tank and have not had it examined for compliance with this law, you are advised to do so before July 1.

If your oil tank is underground, you should be very diligent about ensuring that the tank is not leaking. The older the tank, the more likely it may be. Even if there is no current leak, you may want to consider removing the underground tank and replacing it with an above ground tank in your basement or a shed. Massachusetts state law does not mandate the removal of a residental underground tank if it is not leaking, but there may be local requirements in the municipality in which you live. Your local fire department can tell you about its requirements.

If you are planning to sell your home, you are likely to find that even if the underground tank is not leaking, a buyer will want it to be removed as a condition of the closing. If you are planning to put your house on the market, you should consider removing the underground oil tank before you do so. Removal should be done by a licensed and qualified contractor. The removal must be done in accordance with all state and local requirements, pursuant to a valid permit, and with the supervision of the local fire department. When the work is completed, obtain written documentation and certification from the fire department to verify the proper removal of the tank so you can provide that to potential buyers.

10 Things Buyers Need to Know

The April 29, 2010 issue of the Boston Globe's G/Style Section included an excellent article setting out ten important things buyers of real estate should know when entering the marketplace. Read this informative piece here http://www.boston.com/yourtown/needham/articles/2010/04/29/10_things_to_know_if_youre_buying_a_home_now/

Unemployed? Mortgage Relief May Be Available

The Obama administration recently announced modifications to the Home Affordable Modification Program (HAMP) in an effort to promote stability for the housing market and offer further assistance to unemployed homeowners having difficulty making mortgage payments. Under these modifications, mortgage holders are required to offer forbearance plans to all qualified jobless borrowers for at least three and as long as six months. Under the plan, monthly payments can be reduced to 31% of income or less, or even suspended entirely. Borrowers must meet HAMP eligibility requirements as well as submit evidence that they are receiving unemployment benefits. They must also be in their first 90 days of delinquency. For details on the current program, click here: http://makinghomeaffordable.gov/docs/HAMP%20Improvements_Fact_%20Sheet_032510%20FINAL2.pdf.

To FSBO Or Not To FSBO?

You want to sell your home but you are concerned about the high cost of a broker’s commission on the sale. Should you try to sell it directly, without a broker?

In a good market, a For Sale By Owner transaction (FSBO), may not be very difficult, if you have the time and energy to invest in marketing the house properly. In a slower market, it is much more difficult to get the word out about your home, even with all of the internet resources available in the marketplace. Many who first attempt a FSBO do end up listing with a realtor.
If you are considering a FSBO listing, the following should be considered:

1. Price the home correctly. Regardless of what you think your house is worth, an overpriced property will not sell quickly. Look at recent comparable sales in the area, seek the opinion of experts, and be realistic. A new property on the market generates the most interest.

2. Put your home’s best face forward. Eliminate clutter, remove extraneous furniture, and stage the property to look its very best before showings. Repair any obvious defects, and consider improvements to maximize your property’s appeal.

3. Be willing to spend money on advertising, and use the advertising to get the word out to your target audience.

4. Hold one or more open houses. Advertise these widely, put up signs in the neighborhood, and make it easy for people to find your property. Make sure the house is well lit. Prepare a "fact sheet" showing all of the relevant factual data that a prospective buyer would want to know, and also provide written materials available about the school district, the city or town and other relevant topics. Resist providing any discretionary information about the property, however, as it will be the responsibility of the buyer to do a thorough property inspection.

5. Be flexible about scheduling showings with interested parties at other times.

6. Decide whether you are willing to pay a cooperating fee (generally 2.5 to 3 percent) to a buyer’s broker. If you are, you are likely to widen you potential market and receive inquiries by brokers working with buyer clients.

7. Have a good real estate attorney standing by to assist you when an offer is presented, and consult with that person before accepting a written offer.

If you do go FSBO, be prepared to work hard and invest a lot of time. The value of an experienced and professional realtor is often underappreciated, and once you take on the task of selling your home yourself, you may find that the services provided by a qualified realtor are worth their cost.

First-Time Home Buyer Tax Credit

If you are thinking about buying a house in order to claim the first time home buyer credit, it’s time to act. First-time home buyers can get a credit of up to $8,000, but you must sign a purchase and sale agreement by April 30, and close on or before June 30. If you have not owned a home in the last three years, you are eligible to receive a tax credit of ten percent of the purchase price, up to a maximum of $8,000. Even if you have owned a home before, if you buy a new home having owned and lived in your current home for at least five consecutive years out of the last eight years, you will be eligible for a tax credit of up to $6,500. The credit is claimed by filing an additional IRS form with your federal tax return for the year of purchase. If you bought a new home in 2008 or 2009 and have already filed your return without claiming the credit, you may amend your return for that purpose. Now the catch: there are income limits to the availability of the full credit. For purchases after November 6, 2009, your adjusted gross income cannot exceed $125,000 for singles and $225,000 for marrieds filing jointly. For purchases before November 7, 2009, the limit is $75,000 for singles and $150,000 for marrieds filing jointly. So come on, first time buyers—get out there and help stimulate the real estate market AND get a tax credit at the same time.

New Laws Regarding Smoke Detectors in Massachusetts Residential Properties

Sellers of residential property have long been required to deliver their properties equipped with smoke detectors (and since 2005, carbon monoxide detectors) in compliance with Massachusetts law, to have the property inspected by the local fire department, and to obtain and deliver at closing a certificate evidencing the compliance of the property with those laws. A new law has just gone into effect which modifies the smoke detector requirement.

Effective yesterday, the smoke detectors in any home being sold which is built before 1975 and relies on the old battery operated version must be upgraded to contain photoelectric smoke detectors as well. Photoelectric smoke detectors use light rather than radiation to detect smoke, and are are most effective in detecting smoldering or slow moving fires. Photoelectric smoke detectors must be installed within 20 feet of kitchens or bathrooms containing showers. Areas beyond 20 feet require both photoelectric and ionization smoke detectors, either in the form of a single dual detector or two separate detectors.

If you are selling, or planning to sell, your home, you should be aware of this new requirement and ensure that your smoke detectors are in compliance before scheduling your fire department inspection.

Good News for Boston Area Borrowers

The residential mortgage market has long made a distinction between two categories of mortgage loans depending on the amount being borrowed. “Conforming loans” are those up to a stated ceiling amount (currently $417,000) and “jumbo loans” are those in amounts above the conforming limit. Rates have historically been higher for jumbos than for conforming loans, and for some time now the differential in rates between conforming and jumbo loans has been substantial, making it significantly more expensive to obtain mortgages in high loan amounts.

As part of the 2008 economic stimulus package, Congress increased the ceiling amount for conforming loans in certain high cost areas around the country. In the Boston area, the conforming loan ceiling was raised to $523,750 for 2009. This has allowed borrowers to obtain higher mortgages at conforming rather than the higher jumbo rates. Congress recently passed legislation extending the increased ceilings through December 31, 2010. So for another full year, the conforming loan limits in the Boston area for single family homes and condominiums will remain at $523,750.

This is good news for those of you in the Boston area looking to purchase or refinance, as it remains possible for another year to obtain that higher loan amount at lower cost.

Attorney Representation in Residential Purchase and Mortgage Transactions

I represent many buyers of residential real estate, and I am often asked by clients whether or not I can, or should, represent the mortgage lender as well. This is a good question, and one worth spending a moment to discuss.

In Massachusetts, a residential mortgage loan must be prepared and closed by an attorney. In this context, the attorney represents the lender, but it is fairly common for a buyer to ask the mortgage lender to permit their own attorney to close the mortgage loan as well. Although a technical conflict, it is a conflict that is regularly waived by both buyer and lender because the interests of both parties are largely the same. Both want clear title, proper documents and all other matters to be in order for closing. It is extremely rare that the interests of buyer and lender become adversarial, but in those rare cares, an attorney acting in dual representation would be required to withdraw. In over 25 years of practicing real estate law, and in representing both buyer and lender in a majority of those cases, I have never been required to withdraw due to a conflict between the parties.

In my view, there are two compelling advantages to a buyer in having the buyer’s attorney close the mortgage loan: quality control and cost savings. From a quality control standpoint, most buyers feel there is comfort in knowing that the attorney they have engaged is also the one responsible for the important pieces of due diligence and preparation needed to get to closing, rather than an attorney other than the one they selected and with whom they may not be familiar. As to cost, regardless of who represents the lender, one of the buyer’s closing costs will be an attorney's fee to the lender's attorney to close the loan. This is generally a fixed fee determined by the lender and the attorney and quoted to the buyer on the good faith estimate of settlement charges. Because an attorney representing only the lender generally will not be involved with any matters outside the scope of the loan closing, a prudent buyer will also engage an attorney to handle the negotiation of the purchase and sale agreement and and any other matters that may arise strictly between buyer and seller. Depending on the buyer’s wishes, this personal representation may end upon execution of the P&S or may continue through and including the closing, and naturally, the buyer will pay a separate fee to the attorney for these services. If two attorneys are involved, there is a probability of overlap in the effort to reach the closing table, and the buyer may feel he or she is paying twice for certain services. Instead, if the buyer’s attorney closes the loan as well, all preparation is consolidated into one effort, thereby reducing any duplication of effort and thus reducing the total legal fees in the transaction.

Most, but not all, lenders will honor a buyer’s request to have their personal attorney close the loan, so long as that attorney is qualified, but remember that this request must be made early in the process before the lender assigns the transaction elsewhere. If you are buying residential real estate financed by a mortgage loan, and your attorney is experienced in the representation of mortgage lenders, I encourage you to consider asking your lender at the time of application to use your own attorney to close the mortgage loan as well. The odds are you will be quite satisfied with the outcome.

First Time Homebuyer Tax Credit Extended

Good news for first-time homebuyers! The United States Senate has voted to extend and expand the first-time homebuyer tax credits which have been in place as part of the economic stimulus package enacted earlier this year; the House is expected to follow suit later this week. The program was scheduled to expire at the end of November, but will now be extended through June 30, 2010. Under the new bill, Buyers who have owned their current homes at least five years will be eligible for tax credits of up to $6,500. First-time homebuyers, or anyone who hasn't owned a home in the last three years, will still get up to $8,000. To qualify, buyers have to sign a purchase and sale agreement by April 30, 2010, and close by June 30. The credit is available for the purchase of principal homes costing $800,000 or less; vacation and second homes are not eligible. There are income caps: the credit is phased out for individuals with annual incomes above $125,000 and for joint filers with incomes above $225,000.

If you are considering the purchase of your first home, this is the time to do it! Lower prices and the tax credit make this a most favorable time to become a homeowner.

Good news for the local housing market?

The Boston Globe reports today that Massachusetts home sales have continued to increase for the second consecutive month, indicating (in its view) that the housing market is beginning to recover. Do we believe this? Perhaps the power of the press can make it so! Read the complete article at http://www.boston.com/business/articles/2009/09/30/signs_point_to_recovery_in_mass_housing/

More new federal lending regulations

The federal government has been staying busy in its efforts to revamp the mortgage lending industry. In addition to the new regulations previously reported here, an article in today's New York Times explains additional limitations on lenders making high-cost mortgage loans to borrowers who cannot demonstrate a clear ability to repay the loan in the conventional manner. Borrowers with low credit scores or no ability to fully document their income will find it far more difficult to obtain mortgage financing. The full article may be found at http://www.nytimes.com/2009/09/27/realestate/27mort.html?emc=tnt&tntemail1=y.

Significant Changes to Mortgage Lending Disclosure Rules and Their Impact on Your Closing

The Mortgage Disclosure Improvement Act, which affects all residential mortgage loan applications submitted on or after July 30, 2009, imposes substantial additional compliance obligations on the part of mortgage lenders, in an effort to provide more transparency and fairness and to better protect consumers in making choices about mortgage financing. These new regulations are likely to lengthen the time it takes to close a mortgage loan. It is important that all parties involved in a real estate mortgage transaction understand these new regulations and consider their impact on the timing of the process. Following is a summary of the changes and how they may impact you:

1. A lender is now required to provide a good faith estimate of closing costs (GFE) and an initial Truth In Lending Disclosure Statement (TIL) within three business days after receiving a mortgage loan application. The lender may not collect any up-front fees from a borrower, except for a credit report fee, until the initial GFE and TIL are received by the Borrower.

2. No mortgage loan may close less than seven business days after the date on which the borrower is issued the initial GFE and TIL.

3. A home buyer must be provided with a copy of the appraisal not less than three business days prior to closing.

4. If the Final Truth-In-Lending Disclosure form (TIL) indicates an increase of .125% or more in the Annual Percentage Rate from the APR stated in the initial TIL, there is a mandatory 3 day waiting period before the loan can close in order to give the borrower an opportunity to review and agree to the new numbers.

These new regulations have the potential impact of delaying the timing of closing a mortgage loan. The ordering of appraisals may be delayed until the lender is able to collect the appraisal or application fee. A delayed appraisal may result in a longer time between application and when the lender issues a commitment letter and clears a loan to close. All of this means that the closing date set in a purchase and sale agreement between a buyer and seller may no longer be certain, since it is possible that the lender will be required to delay the closing in order to meet these new disclosure and timing requirements. In certain circumstances, these waiting periods may be waived by the borrower if it is determined to be "necessary to meet a bona fide personal financial emergency". It remains to be seen what constitutes "a bona fide personal financial emergency" and whether individual mortgage lenders will permit waivers as a matter of policy.

As a buyer, realtor or buyer’s attorney, you would be well advised to include a clause in your purchase and sale agreement which grants an extension of the stated closing date if required by the mortgage lender in order to satisfy these new regulations. Without that, a buyer might be caught in that no-man’s land between having a contractual obligation to close on a stated date or forfeit a deposit, but not yet having mortgage funds available from the lender. Query whether such a circumstance will qualify as a "bona fide personal financial emergency" which permits a waiver of the notice periods.

New Rules For First Time Home Buyers

When I started this blog, I was told that the first rule of blogging is to keep up with posting so readers stay interested. Somehow, that advice fell to my deaf ears over the summer. I won't try to make any unusual excuses, but instead will just renew my efforts to go back to regular postings, so that my loyal readers will again be kept informed of interesting developments in areas of the law that might affect them.

I will start by encouraging all potential first-time homebuyers to read Ron Lieber's terrific article in the September 11, 2009 issue of the New York Times, "Seven New Rules for the First -Time Home Buyer". Mr. Lieber has excellent advice on this topic in our current economic climate. Check it out at http://www.nytimes.com/2009/09/12/your-money/mortgages/12money.html?_r=1&emc=eta1.

More Trouble In Mortgage Land

The Boston Globe reports today what I have been seeing to be true: property appraisals are coming back at very conservative (read: low) values, and this is having a chilling impact on both sales and refinances of residential properties. A low appraisal may have the impact of reducing the dollar amount the mortgage company will permit you to borrow. Moral: whereas it used to be enough protection for a buyer to include a general mortgage contingency in an Offer to Purchase, these days it is prudent to include a specific additional contingency that the appraisal performed by the bank must indicate a value in at least the amount of the proposed purchase price.

The full text of the Globe article can be found here: http://www.boston.com/business/articles/2009/06/10/appraisal_discrepancies_put_some_home_sales_at_risk/