NJRealEstate

NJ Short Sales, Getting to Closing

2008-10-05T19:47:00.001-05:00

It seems as though Short Sales are the growth segment in today's real estate market. Every day I receive calls from potential clients interested in buying or selling Short Sales. From speaking with the clients and their agents i know that there is a great deal of confusion as to how the transactions progress, and I've seen many short sale transactions mishandled and fail. In short, getting a short sale Contract is easy.... getting it to close is not.

Below is a brief outline of the steps in getting a Short Sale transaction to closing.

#1. Buyer makes the offer. Just like any other transaction, the buyer writes an offer with his or her agent. Hopefully, the listing agent added "subject to third party approval" in the listing and the buyer knows that the transaction is a short sale. Also, the buyer's agent should have advised the buyer as to the risks and difficulties involved in buyering a short sale. The deal has a much better chance of making it to closing if the buyer has realistic expectations about the time it may take to gain lender approval and also about the "as-is" nature of the sale.

#2. The offer is presented to seller. This is the first step where I see alot of confusions. Although the deal is a short sale, the home is still owned by the seller, not the bank. The seller can accept or reject the buyer's offer or can counter-offer. The decision is not (yet) up to the bank. Once the terms are agreed upon, the seller signs and there is a Contract.

#3. The contract goes through Attorney Review. As this point the contract is still treated like any other residential real estate purchase. The contract enters Attorney Review and is not binding on either party until Attorney Review is concluded. The seller's attorney should reiterate in Attorney Review that the transaction is contingent upon the approval of the seller's lender. The attorney should also state that the seller will not be responsible for any repairs, for the Certificate of Occupancy, or for any other aspect of the transaction. The buyer's attorney should add a "kick out" clause allowing the buyer to walk away if the seller's lender has not responded to the offer within a reasonable amount of time.

#4. The contract is presented to the seller's lender. Although the contract is now final between the buyer and seller, the transaction will not close unless the seller's lender agrees to accept less than full payoff of the loan to release their lien on the property. In deciding whether to accept the amount offerred, the lender will look at the value of the home as well as the seller's ability to make payments on the mortgage debt. Specifically, the lender will request a full package of documents including the Contract, a Comparative Market Analysis, a copy of the listing agreement, a draft closing settlement statement, and seller financial statements including copies of paystubs, bank statements and tax returns.

#5. Waiting and Negotiating. As you probably already know, waiting for the lender to approve the deal is the most frustrating part of the whole transaction. The lender may respond in two days, two weeks, two months, or never. If the contract submission package to the lender is missing a single document, the lender may refuse to even consider the offer.

All negotiating with the lender is conducted by the seller's agent and/or the seller's attorney. Very often, the key to success with the seller's lender is persistence. The lender's loss mitigation department is inundated with files, so getting your file in for consideration requires constant followup. In my office, we have one attorney whose job is to followup with short sale lenders daily. Every file, every day, she makes contact with the lender representatives and requests an answer.

#6. Getting to Closing. Once the lender accepts the Contract, the deal can move towards closing. The lenders usually give a very short amount of time to close, often just 10 or 14 days from acceptance. It is very important that the parties are prepared to meet the deadlines imposed by the lender. The buyer should be ready to close, with the appraisal, inspections, title searches all performed in advance of lender acceptance. Too many buyers wait for lender approval to do these things and this jeopardizes the deal since the lender's deadline will be missed.

The close ratio for short sales is well below that of traditional transactions. However, with the right team of experienced short sale experts (agent/attorney) the chances of your short sale making it through to closing are greatly improved. Getting lender approval is essential, but it is only part of the entire process. The right team of professionals will get the deal closed.

Loss of Title Insurance Coverange on Deed Change

2008-08-15T21:57:00.002-05:00

What happens if a homeowner changes her interest in a property by conveying the property into a trust or LLC?

If she is insured using the ALTA One-to-Four Family Residential Policy - 1987 (NJRB 1-06) or the ALTA Owners Policy - 1992 (NJRB 1-11), coverage will terminate. If she is insured under the ALTA Owners Policy - 2006 (NJRB 1-15) or the Expanded Coverage Homeowners Policy - 2008 (NJRB 1-16) policy, coverage may continue, depending upon the transaction.

The New Jersey Supreme Court rendered a decision in Shotmeyer v. New Jersey Realty Title Ins. Co. on June 5, 2008. In that decision, the Court confirmed what the title industry had been advising clients for many years - that coverage terminates when the insured voluntarily conveys their entire interest in their property to another person or entity; but if the interest in the property is transferred as a matter of law (such as to an heir, devisee, or merger successor) the coverage remains in effect.

Under the definition of "Insured" in the 1987 Residential and 1992 Owners policies, coverage terminates when the insured voluntarily transfers title to another person or entity, whether or not that person or entity is in any way related to the grantor. However, coverage is continued if the transfer occurs as a matter of law. (It may also be continued under the 1992 Owners policy for any warranties made by the transferor.)

If the insured is covered by the 1987 Residential or 1992 Owners policies, there are two options to maintain coverage. First, they can obtain a new policy insuring the new entity. Second, they can purchase a Successors and transferees Endorsement (NJRB 5-66) to the existing policy. This endorsement modifies the definition of "Insured" in the two policies to include the following:
successors by operation of law, as opposed to those taking by voluntary transfer; or
trustees or beneficiaries of an inter vivos or testamentary trust, providing the insured is the settlor or testator and that the transfer is for no or nominal consideration; or transfers for no or nominal stated consideration provided the insured and transferee are related by blood or marriage; or the transferor is the owner of all or substantially all of the stock or other interests in the transferee or vice versa; or all or substantially all of the stock or other interests in both the transferor and transferee are owned by the same person or entity.

The cost for the endorsement is 10% of the applicable underwriting charge if purchased with the original policy, and 20% of the currently applicable underwriting charge for the underlying policy if the endorsement is issued subsequent to the issuance of the policy.

Please note that if the insured is the holder of a 2006 Owners or 2008 Expanded Coverage Homeowners policy, the definitions of "Insured" and "Continuation of Coverage" should be reviewed in light of the proposed transfer. The 2006 Owners policy contains a definition of "Insured" very similar to the definition in the Successors and Transferees Endorsement. The "Continuation of Coverage" in the 2008 Expanded Coverage Homeowners policy is limited to heirs and devisees, divorce situations, trustees or successors of a trust made by the insured, and beneficiaries of a trust on the insured's death. Consideration should be given to one of the other alternatives if the transfer does not fit into one of these specific situations.

First Time HomeBuyer Tax Credit

2008-08-09T12:20:00.004-05:00

WHAT IT IS. The 2008 Housing Act gives first time homebuyers a tax credit of up to $7,500 if they close on a home between April 9, 2008 and June 30, 2009. The actual amount of the incentive is 10% of the purchase price up to a maximum of $7500.

Note that this is a tax CREDIT not a tax deduction. This means that the gov't will give up to $7,500 to the qualifying first time buyer. To the extent that the credit exceeds any tax due, the gov't will send the buyer a check.

WHO QUALIFIES. To qualify for the credit, the buyer cannot have owned a principal residence in the U.S. in the three years prior to the purchase. Also, the credit is phased out for individual tax payers with an adjusted gross income (AGI) between $75,000 and $95,000 ($150,000 and $170,000 for joint filers).

THE PAYBACK. The tax credit is actually a 15 year interest free loan. In the second year after purchase, the buyer must begin to pay back the credit/loan in equal installments over the next 15 years. If the buyer sells the home or it ceases to be the buyer's primary residence, before complete repayment is made, any remaining credit shall be due on the tax return for the year in which the home is sold. On the maximum $7,500 credit, the payback would be $500 per year.

HOW IT CAN HELP. The limitation of this incentive is that the funds are not available to the homebuyer at the time of closing, the funds come later when the buyer fills out his/her tax return. How can this incentive motivate buyers to buy if the money is not available to get them through the closing? I have three ideas:

1. Prospective buyer can borrow money from relatives for the closing and pay it back from the tax credit, as long as the buyer's mortgage lender's approves.

2. The buyer can immediately reduce his payroll tax withholding to the extent that the credit will cover the decreased tax payments. This will put extra money in the buyer's pocket each payday.

3. The buyer can buy a home that needs some work, knowing that he/she will have the tax credit money to pay for some repairs or remodeling. This may allow the buyers to consider homes that they otherwise would not consider. For example, the credit could potentially pay for a new roof or water heater, or siding.

Anyone have any other ideas on how the credit can help get buyers into houses? I love to hear them.

Jim Miner

The Law Office of James M. Miner, LLC
Westfield Office Short Hills Office
533 South Ave West 7 Short Hills Ave.
Westfield, NJ 07090 Short Hills, NJ 07078
908-232-9962 973-315-3089
908-232-9965 (fax)
www.BuyersLawyer.com

IndyMac Mortgages, will they close?

2008-07-12T00:08:00.004-05:00

You've likely heard by now of the FDIC takeover of IndyMac Bank. This is bad news for IndyMac depositors (at least those with deposits in excess of the insured limit) and for IndyMac shareholders.

The big question for those of us in the real estate industry is whether or not IndyMac, or its successor entity, will honor IndyMac's outstanding loan commitments.

So far there is no clear answer. One IndyMac loan officer sent me an email from his vacation to say that "yes" the commitments would be honored. I heard of another case, however, where the FDIC placed additional conditions on the loan which will ultimately prevent it from closing.

For those of us with clients with IndyMac loan commitments, we'll have to wait it out through the weekend. I don't expect any definitive answers before Monday. I believe that even the IndyMac websites will be down until then.

Come Monday, information should be available from the following source, courtesy of the FDIC:

"VI. Loan Customers
If you had a loan with IndyMac Bank, F.S.B., you should continue to make your payments as usual. The terms of your loan will not change under the terms of the loan contract because they are contractually agreed to your promissory note with the failed institution. Checks should be made payable as usual and sent to the same address until further notice. For all questions regarding new loans and the lending policies of IndyMac Federal Bank, please contact 800-998-2900 or visit the IndyMac Federal Bank website at www.IndyMac.com."holders.

We'll see what happens. Meantime, I'll be checking with other lenders to see who would be well positioned to take over clients with IndyMac commitments and to quickly arrange for alternate financing.

Good luck, and feel free to give me a call if you have any questions.

Short Hills NJ Real Estate & Summit NJ Real Estate

2008-07-10T09:51:00.003-05:00

I'm very happy to let everyone know that my Short Hills office is up and running. This office is for the convenience of our realtors and clients in the Summit and Short Hills areas. Along with Westfield, I consider these to be among the most desirable towns in NJ, especially for families with young children.

Contact information:

The Law Office of James M Miner LLC
7 Short Hills Avenue
Suite 204
Short Hills, NJ 07081
973-315-3089
www.ShortHillsLawyer.com
www.SummitLawyer.com

I look forward to expanding our presence in these great towns. Jim.

Successful Real Estate Transactions

2007-05-03T17:45:00.000-05:00

As a real estate lawyer in NJ I handle transactions from $70,000 co-ops to multi-million dollar homes. In every case it is a major financial transaction for the buyer and seller and everyone hopes for a smooth transaction.

I've handled thousands of transactions and I can tell the secret to a smooth and painless transaction: get the right team of Real Estate Professionals working for you. Your core team should include a great Realtor, a great mortgage lender and a great real estate attorney. Your core team can help you find other professionals that you will need along the way, such as a home inspector and a homeowner's insurance agent.

How do you find the right professionals to place on your team? Research. Ask friends and neighbors for personal referrals. If you have chosen one member of your team, ask him or her for referrals for the other members. Once you have a few names, call them up and interview them. You will be spending alot of time with your Realtor, Lender and Attorney, so make sure you can develop a good rapport and that you will be comfortable working with them. Ask if they are full-time or part-time, ask how many transactions they have handled, ask how long they have been in the business. Ask if they will be with you through the entire transaction or if they will hand you off to an assistant. Ask if they are comfortable using the latest technology to help you with your transaction. Will they email documents and information to you, or will they ask you to go sit by a fax machine? Do they offer online access to your transaction documents or will you have to call for status updates? Do they have assistants who can help you when they are out, or do you have to wait for a call back? Through this process you will find out how the professional operates and you will find out if this is a person that you would like to work with.

Keep the following in mind:

Any licensed attorney is considered qualified to handle real estate transactions. You may want to find out if the attorney you are considering specializes in real estate or has this as a small part of a general practice. The attorney you choose will be responsible for ensuring that all deadlines are met and that you do not lose important rights by missing a deadline.

Any licensed real estate agent is considered qualified to handle your transaction. You may want to know if the agent you are considering is full-time or part-time. You may also want to know if the agent has handled dozens of transactions, or if yours is their first.

Any mortgage representative can get you a pre-qualification. But did you know that mortgage reps are not licensed? There is no testing or license requirment to be a mortgage representative in NJ. You should make sure that the person responsible for financing the biggest transaction of your life is well qualified to do so.

Putting together the right team takes time and effort. The effort that you put into this stage of the transaction will pay big dividends later when the transaction goes smoothly, with no surprises!

Real Estate Dictionary

2007-02-10T17:12:00.000-05:00

Property Search Tool

2007-02-10T17:04:00.000-05:00

Real Estate License Question of the Day

2007-02-10T16:59:00.000-05:00

Seller Concessions. Clarification of Ethics Opinion 710

2007-02-08T20:36:00.000-05:00

Clarification of Ethics Opinion 710.

After Opinion 710 turned the NJ real estate community upside-down, the following "clarification" was issued. Now it's perfectly clear .

NOTICE TO THE BAR

Clarification of Advisory Committee on Professional Ethics Opinion 710 In response to numerous inquiries concerning “seller’s concessions,” the Advisory Committee on Professional Ethics hereby clarifies Opinion 710, “Misrepresenting Purchase Price or Other Material Fact Regarding a Real Estate Transaction.” The Opinion is based upon the particular facts submitted by the inquirer and recited in the Opinion. It addresses fictional and deceptive increases in purchase prices unrelated to the actual circumstances or costs of closing, and contrary to the expectations of the lender or the ultimate holder of the mortgage. As stated in the Opinion, a prohibited transaction is one that is not premised on “a legitimate charge against the seller on account of any actual costs assumed by it and otherwise payable by the buyer.” Accordingly, the Opinion does not implicate a contract of sale that explicitly states that the seller shall provide the buyer with a credit against legal and legitimate costs or expenses related to the sale, which would otherwise be absorbed by the buyer, such as actual closing costs.

Melville D. Miller, Jr., Esq., ChairAdvisory Committee on Professional EthicsDated: December 22, 2006

Seller Concessions. Ethics Opinion 710

2007-02-08T20:30:00.000-05:00

Ethics Opinion 710: Seller Concessions.

Following is the full text of the ethics opinion regarding seller concessions.

OPINION 710. Advisory Committee on Professional Ethics. Misrepresenting Purchase Price or Other Material Fact Regarding a Real Estate Transaction

An inquirer asks if it is an ethical violation for an attorney to participate in a real estate practice described as follows. A contract for the sale of residential property has been prepared by a realtor and signed by both seller and buyer for a set purchase price with a mortgage contingency. Either during attorney review or thereafter, the lawyers for the seller and the buyer are requested to amend the contract by increasing the purchase price and the mortgage contingency amount in like amounts. In addition, the attorneys are asked to amend the contract to provide that the seller give a credit to the purchaser at closing in the same amount, calling it a “seller’s concession” or “seller’s payment of purchaser’s closing costs.” The inquirer states that the amendments are calculated to increase the size of the purchaser’s mortgage loan and “is a fraudulent practice perpetrated on the ultimate investor.”

The Committee notes that in recent years residential mortgage lending has, through the secondary market, become a major category of finance in this country. As a result of federal programs, those who originate loans may earn financing fees at the closing and then convey those loans to entities such as the Government National Mortgage Association (known as Ginnie Mae), the Federal National Mortgage Association (known as Fannie Mae) and the Federal Home Loan Mortgage Association (known as Freddie Mac). These programs, in turn, after buying the mortgages from the originators, then issue “mortgage- backed bonds” to investors, who receive the periodic payments of principal and interest from the borrowers.

This secondary market enables the originating lender to sell the loan, and to originate more loans and financing fees with the sales proceeds. In addition, the secondary market has created an investment market for low risk mortgage backed securities, and attracts investment dollars into the residential mortgage business.

On the facts set forth in the inquiry, it appears that the sales contract as amended is submitted to the original mortgage lender, or broker, with the sales price increase and corresponding credit expressly stated, but without any assurance that assignees in the secondary market would be aware of the device employed to increase the size of the mortgage loan. The inquirer believes this implicates the lawyers for the seller and the buyer in a deceitful practice in possible violation of the ethical rules.

RPC 1.2(d), RFC 4.1 and RPC 8.4(c) are each implicated by the practice described by the inquirer. RPC 1.2(d) provides: “A lawyer shall not counsel or assist a client in conduct that a lawyer knows is illegal, criminal or fraudulent....” RPC 4.1 (a) provides: “In representing a client a lawyer shall not knowingly: (1) make a false statement of material fact or law to a third person; or (2) fail to disclose a material fact to a third person when disclosure is necessary to avoid assisting a criminal or fraudulent act by a client.” RPC 8.4 provides: “It is professional misconduct for a lawyer to... (c) engage in conduct involving dishonesty, fraud, deceit or misrepresentation....”

By manipulating the sales price in the manner described by the inquirer, either the originating lender or the secondary investors may be deceived as to the true market price of the house. The deception is the credit to the buyer given by the seller to offset the increase in purchase price. The credit is not justified by any additional property or rights to be sold to purchaser, or by a legitimate charge against the seller on account of any actual costs assumed by it and otherwise payable by the buyer.

The deception in the deliberate overstatement of the property’s sales price with the offsetting credit is similar to the case In re Labendz, 95 N.J. 273 (1984). In that case a purchaser’s attorney was suspended for a year for his participation in the preparation of a mortgage loan application to a savings and loan association that misrepresented that the sales price was $107,000 instead of the actual price of $100,000. The $7,000 increase was to be offset by a seller’s credit to the buyer. The motive of the buyer was to increase the mortgage amount to avoid the lender’s loan limitations. The buyer was successful in obtaining the higher loan, but the scheme came apart when the seller’s attorney refused to cooperate. The attorney in Labendz attempted to justify the credit as a legitimate expense, but the Court pointed out that no actual expenses or “additional terms of value accounted for the credit.” Id. at 276. The Court found that the conduct was “serious” and involved “misrepresentations and violations of law,” inconsistent with an attorney’s “duty to act with total honesty and avoid participating in any fraud or misrepresentation.” Although the conduct in Labendz was particularly egregious, since there was no actual amendment to the contract of sale containing the offsetting credit, the underlying deception is otherwise the same as presented here.

The Committee also notes that New Jersey case law imposes a duty upon an attorney to act fairly and in good faith, Davin, LLC v. Daham, 329 NJ Super. 55 (App. Div. 2000), and that candor and honesty necessarily require disclosure of significant facts even though disclosure might not be in the best interests of the client. Id. at 76. In Davin the Appellate Division held that a lessee stated a claim against a lessor’s attorney, where the lessee was induced to enter into a lease despite the lessor’s attorney’s knowledge that, due to a pending foreclosure proceeding, the lessee would be subject to ejectment. The lessor’s attorney not only failed to mention the foreclosure, he also inserted a covenant of quiet enjoyment in the lease, knowing his client could not fulfill it.

In the present inquiry it would seem that the originating lender would have the opportunity to uncover the ruse upon a close reading of the contract and the loan application, and to protect itself before completing the transaction, but it is less clear that persons investing in the secondary market would have the same opportunity, or would have recourse against the assignor in the event a later default occurs and a loss is suffered as a result of the enhanced sales price. Nevertheless, the conduct of lawyers engaging in this practice violates RPC 1.2 (d) and RPC 4.1(a) because the lawyers have advised their clients, and have knowingly participated, in the making of a false statement of a material fact to a third party. The conduct also violates RPC 8.4(c) because it involves a deceit, intending that the mortgage loan investor will rely on the misrepresentations in the contract in determining the size of the mortgage loan. This conduct compromises the integrity of the underwriting of the loans because it exposes the lender and those who purchase the resulting loan to a greater risk of loss than is knowingly accepted. It is the lawyers’ duty to see that the true terms of a real estate transaction are disclosed by their clients to the lender and to prevent false and misleading information from becoming available by their acts or omissions to those who, in due course, may purchase the loan. It cannot be disputed that the practice involves a “material” fact for if it were not expected to cause the lender to increase the loan, it would not be requested.

In conclusion, it is the opinion of the Committee that the participation of an attorney in the transaction presented by the inquirer would constitute ethical misconduct.

Mortgage Scams & Tricks

2007-02-06T22:11:00.000-05:00

BORROWER BEWARE: PROTECT YOURSELF WHEN CHOOSING A LENDER

My first post on this blog deals with one of the most challenging aspects of buying a home.... arranging your mortgage financing.

It is understandable that when shopping for any goods or services, you want to receive the lowest price possible. Shopping for a lender for your new home purchase is no exception. But be cautious; by having unreasonable expectations you may make it easy for an unscrupulous sales person to mislead you or even take advantage of you. Your best defense is to take proper measures to protect yourself.

Knowing the right questions to ask and getting things in writing before submitting an application are your responsibilities and your best defense against deceptive practices, misleading information, and misunderstandings. Do not hesitate to consult your attorney after you have done your homework and are ready to make a decision. If you are not getting firm answers to your questions, are put under pressure to make a decision or an appointment, or cannot get rates, fees, and terms in writing, then you should find another lender.

Below are a few items to be aware of:"Low Balling"The practice of quoting a rate that may be 1/4% lower than the actual rate the lender currently has available, to induce a customer to set up an appointment, is referred to as "Low Balling". When you actually meet with the loan representative, they may tell you that rates have gone up, or suggest you let the rate "float." When the rate floats it is not locked and could be higher or lower at closing than at the time of application. If a rate is not locked the lender has no obligation to close at the rate being quoted. If you insist on locking a "low balled rate" you will be told that you must pay points, an origination fee, or a lock-in fee that is non-refundable.

"No Cost" Loans. There are no free lunches or "no cost" mortgages. The costs are reflected in a higher interest rate than the lender's regular rate, usually 1/4 to 3/8% higher. In addition, there are some fees that the lender will require you to pay. Paying a higher rate in lieu of paying fees and closing costs may make sense when you would not be able to recoup your expenses within a few years at the lower rate. This is likely to be the case for loans under $100,000.Some states, such as California, do not permit the use of phrases like "No Cost" in connection with mortgage advertising. When you are seriously considering a specific loan request that the rate, terms, rate lock and all lender related fees be put in writing. This will reduce the possibility that a salesperson is failing to fully disclose information. Compare the written quote to what was explained verbally and make sure it includes all relevant information.

Origination Fees. Many lenders charge origination fees equal to 1/2% to 1% or more of the loan amount. Some will quote a "0" point loan but fail to mention origination fees.

Rate and Points. Many advertised or quoted rates often require the payment of several discount points that are not mentioned in the ad.

Rate Locks. Most lenders will "lock" your rate for 60 days from the date of application. In most cases this allows you a sufficient period of time to close and be assured that your loan will be at the rate you applied for. Some ads and quotes may only be good for 15 or 30 days or may not be locked until a written approval is issued. Even for refinances you should insist on quotes that can be locked for at least 45 days. While it is possible to close in less than 45 days, don't count on it. Ask for a written rate lock agreement.If your closing is more than 60 to 75 days away, don't initially disclose that information. When the sales person knows your closing date exceeds the period that a rate can be locked, they can quote an unusually low rate (see "Low Balling") in order to get you to submit an application. The sales person knows they will not be obligated to deliver on their quote thereby creating an "opportunity" to mislead.

Rate Lock or Commitment Fees. It is not unusual for lenders to charge a rate lock or commitment fee. When charged it is normally equal to ½% of your loan amount and is refunded at closing. If you withdraw your application to switch to another lender you risk losing this fee.