Real Estate Investing

Any contract written after July 30, 2009 will have a whole new set of rules to follow - primarily the Mortgage Disclosure Improvement Act which included amendments to the Truth-in-Lending Act.  The new rule amends disclosure requirements, sets waiting periods, and institutes fee disclosure requirements.  All are important measures to protect the consumer.

Here’s a link to the detailed information about Regulation Z.

First, lenders must now disclose if there is a rate change - or extension of credit.  If the annual percentage rate (APR) changes by more than 1/8 of a percent, a new good faith estimate must be SENT no later than three business days prior to the closing.   These same disclosures must now say, “You are not required to complete this agreement merely because you have received these disclosures or signed a loan application.”

The waiting period is the funkiest part of the new regs, though.  A creditor may not close a home loan until SEVEN business days following the MAILING or delivery of the initial disclosures.  Saturdays count as business days, but Sundays and holidays do not.  If there are any changes, yet another seven-day waiting period is required.

What does this mean for buyers, sellers, and their agents?  Count on a longer period of time to close a house.  Where we might’ve before been able to close in 30 days, it MIGHT now take 45 days.  In any case, for a home loan there is a minimum 7-day wait until closing.  Of course, a CASH deal is always an option.

I had to laugh (that or cry) at an article in the most recent magazine I received from the fine folks at The Real Estate Buyer’s Agent Council.  They offer a section called “60 Days” that features little vignettes of real estate news from around the country.  So we see there will be problems ahead for the housing rich, a county in Florida has begun buying and selling foreclosed homes (which I’ve preached to my own local community to no avail), and how one real estate company in Spain is offering a one-stop shop: houses, title company, divorces.  Wow.

My favorite tidbit by far, though, was about the squatter who was removed from an almost-million dollar home in Jupiter, Florida.  Apparently a woman had moved in to a home in January that had been on the market for more than two years.  She removed the for sale sign and had all the utilities turned on.  Then she redecorated!   When the listing agent went to check on the house, the woman was removed.  The squatter said she worked at a title company tha tdoes business with the homeowner, but the seller denied authorizing the move-in.

I wonder if she paid rent?

Plus I’d think she was doing the homeowner a favor … the insurance rate is less for an occupied home than it would be for a vacant home.

I do think renting is a strong option for many home sellers these days.  It just kills me to see a perfectly nice house sitting vacant.  They get that empty smell.  They stand as bait for criminals.  When a seller does opt to rent, they can have the credit of a renter checked and also get references from both work and former landlords.  It’s a viable option for homes that just won’t sell no matter what.

Photo from Standing Firm.

It’s in the best interest of real estate agents to gather once or twice each month to talk about the housing market, community news, and legal issues.  My former broker once said that he couldn’t afford the liability of carrying agents who don’t attend meetings because they don’t hear the updates on what’s new and how to handle different situations morally, ethically, and legally.

That said, a colleague brought one issue to the room that was teeming with knowledgeable agents … a little clause in a new construction contract by a builder that is actually quite well-known across the country.

The contract stated something to the effect of buyers having the right to seek arbitration should they have problems with the home or contract, but that they GIVE UP THEIR RIGHTS TO A TRIAL.  In fairness, most builders do state that conflicts shall be resolved through arbitration, but rarely are they so specific that they spell out the fact that buyers give up their rights to a jury trial.

In California, the Castleman Law Firm specifically addresses the concern,

If a provision for binding arbitration is included in a printed contract, it must be set out in at least 8-point bold type or in contrasting red in at least 8-point type, and if the provision is included in a typed contract, it shall be set out in capital letters.

Immediately before the line or space provided for the parties to indicate their assent or nonassent to the arbitration provision, and immediately following that arbitration provision, the law requires the following language to appear:

“NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE “ARBITRATION OF DISPUTES’ PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE “ARBITRATION OF DISPUTES’ PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.” “WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE “ARBITRATION OF DISPUTES’ PROVISION TO NEUTRAL ARBITRATION.”

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This may be the cause for the one builder to have it so clearly spelled out here in the Tennessee contracts.  However, whether it’s this specific or not, buyers should be wary of the language that limits their legal rights to arbitration only (e.g., “binding” arbitration).  You have the right to cross it out, though it’s likely that builders may say that if you don’t sign it they won’t sell to you.  If that’s the case, perhaps it is advisable to walk away.

In any case, if there’s anything in the contract that give you reason to pause, be encouraged to take the contract to a real estate attorney for review.  Don’t get caught in a trap where you have no legal recourse.

As a side reference, here’s a link to an article about California’s Arbitration Lemon Law.  Cartoon from this site!