Both buyers and sellers should be concerned about the contract deposit.  The deposit can be handled several ways, 1) bonded and released to the seller, 2) an interest bearing account with the interest going to the parties or 3) an IOLA account with interest to the IOLA fund (most common). When buying a home make sure your contract calls for the seller’s attorney to put the deposit into an IOLA account so if the contract is cancelled the IOLA account will be there to insure the deposits return.  Sellers are even more concerned because if the deposit is stolen by their attorney the seller is responsible.  All sellers should make sure they hire an experienced real estate attorney from a firm which has malpractice insurance and will require that all contract deposits are held in the firm’s IOLA account.

As an experienced Staten Island real estate attorney I see many new lawyers trying to handle closings.  Unlike other legal areas some people think that a closing is a simple matter.  While a closing need not be adversarial you still need an attorney to protect your interests.  Failing to get an excellent real estate attorney can cost you  thousands of dollars, which is particularly true in the area of contract deposits.  When I first started practicing I was retained by several clients whose attorney had robbed their deposits.  Luckily the money had been in an IOLA account and I was able to get them reimbursed by the Client Fund.  Not everyone is so lucky.  I recently got a panicked call from a client who had bought a house several months earlier.  The attorney for the seller had stolen client funds and he was out a substantial amount of money.  I reminded my buyer that during contract negotiations the seller wanted interest on the deposit while I wanted it to be placed in an IOLA account.  The seller was adamant and after hearing the pitfalls of not using an IOLA account my buyer agreed to allow an interest bearing account (I did put in the contract that the seller’s attorney was an agent of the seller and the risk of loss was with the seller).  We successfully closed but after several months the seller still could not get the deposit money (which belonged to him after the closing) released.  Now with the news of the attorney’s problems the situation was clear, the money was gone.  Since the deposit wasn’t in an IOLA account the seller could not look to the Fund for reimbursement and PS he didn’t get the interest either.

Be smart; make sure you hire an experienced real estate attorney whose firm will be there to back you (and your funds) up.  Don’t be penny wise and pound foolish, insist on an IOLA account.

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Since a buyer will be doing the inspection anyway a prudent seller can save himself time, money and aggravation by putting his house in proper working order.  The little items that he didn’t have time to fix will probably become an issue when a buyer’s engineer does his report.  Besides painting, cleaning and general sprucing up of the house the small touch ups like dry water stains from old leaks, surface cracks, small sheetrock holes and other minor things should be resolved BEFORE you put the house on the market.  It will make the buyer more comfortable before he makes his offer and it will make the engineer’s report look better.  Remember until the contract is signed the buyer can ask for anything he wants or simply walk away, by removing as many potential obstacles before the inspection a prudent seller can make his sale much smoother.

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Homeowners want to sell their homes with the least amount of work possible. Since they live in the homes they do find troublesome many issues that a new buyer and her engineer will find objectionable.  A seller will always try to sell their homes in AS IS condition to avoid paying for repairs or lowering the price.  Usually a buyer makes an offer on a house she has seen only once or twice.  She expects the house to be in working order and is not always aware of the state of the major mechanical systems.  A major question that usually runs across the buyers mind at this point in the purchasing process is “Do I need an engineers inspection when buying a home?”.  So after a binder is signed (but before the contract), buyers do an engineer’s inspection.  Scheduling an inspection can take several days which leads to quite a bit of frustration for sellers.  “What do you mean the buyer won’t sign the contract until he has an engineer’s inspection, I am selling the house “AS IS”.  Then after the inspection the buyer’s attorney sends a list of repairs the buyer’s wants completed. “But I’m selling AS IS”, laments the seller.  While a seller is certainly within his rights to say no inspection he must remember that until the contract is signed he has no deal.  The condition of the house is an important deal term.  Sellers must be prepared for an inspection because even though the seller may have told him broker “AS IS” this does not mean that the buyer will agree.

When selling your home in Staten Island, a seller must be aware of current market conditions.  With the bad economy and record number of foreclosures now is certainly a buyer’s market.  During the boom times in 2004-2006 a seller could say AS IS and stick to it.  With homes receiving multiple offers sellers could tell buyers to take the house AS IS and sign the contract quick or risk losing the home to another buyer.  Usually when a buyer asked for repairs or a reduction in price a seller could say no and be fairly certain that another buyer could be found quickly who would take the house AS IS.  In the current climate buyers have much more leverage to demand (and receive) repairs and/or price reductions.  Today a seller must be prepared to make his house as attractive as possible and to eliminate any reasons a buyer may have to reject his house.  Before putting the house on the market a prudent seller will try to remedy as many defects as possible.

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THE MOST IMPORTANT THING TO REMEMBER IS TO UNDERSTAND THE PROCESS BEFORE YOU CHOOSE YOUR REALTOR!   

Why Hiring the Wrong Broker can cost you Thousands of Dollars

Since they get paid by the seller some Real Estate Brokers don’t protect a buyer’s interest.   Since they get paid on the sale they need to get you into a house and since they get paid based on the price of the house they have every incentive to get you to pay the highest price possible.  This does not mean all brokers are bad or that the process is broken but it does mean a smart buyer finds an agent who will work to get a fair price.

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In response to the current lending/foreclosure crisis lenders have seriously increased the amount of paperwork and qualifying requirements needed to get a new mortgage.  Today a lender make an informed decision on the qualifications free of the need to re engineer the American social contract.  Just like the pre-Bush days a borrower needs to show good credit, a reasonable down payment and the ability to afford your mortgage payment based on your income.  Let the wailing begin.  Didn’t groups like ACORN and politicians like Barney Frank declare that owning a home is a basic constitutional right even if you can’t afford it?  Lender’s refusing to lend based on sound underwriting practices, it almost seems un- American!  But what about all the defaulting homeowners and all the people who still want to be homeowners even though they can’t afford to, doesn’t the Government owe these people something?   I’ll leave fixing those problems to the next Obama bailout but for now lets hope that the new banking rules make sure that the mistakes of the 2000’s are not repeated again.  Hopefully a return to sound lending practices will prevent the large scale destruction caused by the wild lending practices of the past.
From 2002 until mid 2008 getting a mortgage to purchase a new home was relatively easy as government policies were crafted to helped more Americans to become homeowners.  Fannie Mae and Freddie Mac loosened underwriting guidelines and introduced new products with lower credit score, income and down payment requirements.  Unfortunately the new underwriting rules coupled with an increase in exotic variable rate products combined with a general weakening in home values lead to a perfect storm for many homeowners.  With lowered property values owners who used low down payment variable rate loans found themselves unable to take advantage of low interest rates as they did not have enough equity in their homes to allow them to refinance.  Unable to refinance and with the interest rate on their adjustable rate mortgages increasing from the low initial rates mortgage payments increased.  Unable to refinance and without equity many homeowners found themselves unable to afford their payments and unable to sell their homes.  The downward spiral began and the foreclosure crisis struck.  Banks found themselves with thousands of bad loans and lost billions of dollars and many stopped writing loans.  Without writing new loans the struggling real estate market came to a halt as potential buyers could not find a place to get their loans.  It came back to the federal government to realize that its goal of encouraging homeownership without regard to ability to pay was a misguided policy.  While money to lend was made available to banks it came with a general tightening of underwriting requirements.  Now your lender wants to make sure before you get a loan that

1) GOOD CREDIT – – no more crazy products which sought to qualify every deadbeat for a loan.  Once again your banker can say if your credit is bad you are not a good risk so maybe you should get approved for a mortgage.
2) INCOME THAT CAN BE VERIFIED – no more stated income products where the borrower just signed a paper saying how much he made.  Just like in the old days, your lender wants to see actual tax returns, pay stubs and confirm with your employer that you are gainfully employed and make enough money to pay the loan back.
3) A DOWN PAYMENT – no more borrowing the purchase price plus the closing costs.  The days of 106% mortgages and people getting into a house for NO MONEY DOWN  are over.
4) TOUGH APPRAISAL STANDARDS – the bank appraiser can’t do the mortgage broker any favors.  No more exceptions or using dissimilar comparable sales.  The new (old) rules make sure the appraiser uses the best up to date valuations and any questions lead to lower appraisals.
Hopefully with a return to sane underwriting rules lenders will feel secure that the loans will actually be repaid and in the event of a default a conservative appraisal will not expose a lender to thousands of dollars in losses. I can only hope that ACORN and Barney Frank leave mortgage lending to lenders and their social engineering skills are focused on less costly areas.

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1) Monica had a mortgage of $200,000.00 at 6.25%.  She was able to use a modification with her existing lender HSBC to reduce her interest rate and lower her payment by $140/month.  Her closing costs, (no mortgage tax on modification) to $2300.00 so by dividing the cost ($2300) by the monthly savings ($140) it shows that it will take her 16.5 months to recover her closing costs.  If Monica intends to be in the house for more than 17 months the refinance makes sense.
 
2) Lesley couldn’t do a modification and would have to pay mortgage tax again (1.8% on $200,000 = $3600.) so her closing cost was $5900.00.  Taking the closing cost ($5900) divided by the monthly savings ($140) it would take her 42 months to recover the closing costs.  Her plans were to remain in the home for a long period so the refinance made sense.

3) Sandra would be able to do a modification (like Monica) but her timeframe for remaining in the house was only 12 months.  After discussion she investigated an adjustable rate (ARM) but ultimately decided that since she intended to move that any monthly savings could not justify paying the closing costs.

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Unfortunately, even if you are just looking to lower your interest rate and loan payment your loan request must go through the whole underwriting process.  Therefore most lenders refinance applications are the same forms as a purchase money mortgage application.  A borrower must show (and the lender must verify)

1)  Credit Report -that the borrower has good credit,
2)  Income – that borrower makes enough money to support the loan,
3)  Reserves – some available liquid assets (bank or brokerage accounts) and
4)  Collateral- an appraisal is done to document the home’s value to determine loan how much of a loan the lender is willing to make. 

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