New Real Estate Scam to be aware of


Brooklin Bridge

Originally uploaded by [desta]

I don’t mean someone selling the Brooklyn Bridge: When you are working with money, there is always a scam around. Some are easy to detect, others a bit harder.

This past week I was at a training class sponsored by Lawyer Title. They identified and shared with us the newest scam to be aware of. Sellers having a “dirty” Release of Lien. The release has been filed with the recorder’s office, so when the title company goes to provide clear title, there are no mortgage notes attached to the property. (Those have been released)

The scam is: the release if fraudulent. The seller still owes. The seller continues to make their payments, so no one is aware and once the home closes they walk away with all the proceeds from the sale of the home. Then they stop making payments and the house starts to foreclose.

When a call is made to the previous mortgage lender, the fraudulent actions are exposed. If this is detected by the title company prior to closing, the buyer is out of luck. They will get their earnest deposit back, but they won’t be getting the house. If it is not detected and the house closes, the title company is in for a big payment to the sellers bank as they guarantee clear title to the buyer.

So if a seller recently paid off their mortgage, and has the ‘paperwork’ to prove it. Be aware. Things may not be as they seem.

Home Owners Associations – some not doing so great

Recently, at a continuing education class, the instructor shared some facts about HOA’s. There are currently around 11,500 Home Owners Associations (I am not sure if that is in the state, or in the county I didn’t write that tidbit down) and of those HOA’s 3000 of them are upside down financially.

I was surprised to learn that as little as 15% of properties going into foreclosure in an HOA can cause financial stress to the balance sheet.

With our residential purchase contract, you the buyer, do get to check out and approve during the inspection period, the CCR’s (rules and regulations of the HOA). We are now suggesting adding in that the buyer to also receive the current financial records for the HOA. Knowing what the financial status is of an HOA, you will have a better idea if there are going to be large assessments in the future, does the HOA have reserves, and are they adding to the reserves each month.

The Foreclosure Transaction and what to know – part 3

SPDS?  Mashed potatoes?

No, SPDS are an acronym for Sellers Property Disclosure Statement.

A foreclosed property will not have SPDS available.

SPDS are like the personal diary of a home.

The seller of a home normally provides this.  A normal seller will be co-operative and happy to give a buyer all the information possible.  A foreclosure sale does not usually have a co-operative seller, but usually an unhappy angry one who definitely isn’t interested in helping the bank or the buyer.

The  7 pages of the SPDS cover questions from plumbing or electrical problems to the presence of scorpions & name of the gas company.  The surrounding area information, such as the property being in the flight path for a nearby airport is also included.      You can imagine the importance of such a document to answer so many questions…..”Is that stain from an old roof leak?  Was it repaired?”.    “Has this home had it’s HVAC system checked annually?”  “Was this addition done with a permit? Did a licensed contractor do it? Who did it?”  “Who has been taking care of this pool?”  “When was this ………….. (fill in the blank) done?”

There are many sources to be checked for the answers to most of the questions asked on the SPDS,   The Buyer Advisory by the Arizona Association of Realtors contains sources that a buyer may use for information about a property and the neighborhood itself.

We give all of our clients a copy of this important document.

The Foreclosure Transaction and what to know – part 1

The Foreclosure Transaction and what to know – part 2

The Foreclosure Transaction and what to know – part 2

Why the lack of a CLUE insurance report in a bank owned property affects you.

A CLUE report is an insurance claims history issued by the insurance company of the home seller. It is normally provided by the seller of a home and given to the buyer during the first 5 days of the inspection period.  It requires the Social Security Number of the home seller so only they can request it.  

If a property has been recently foreclosed on, the bank has not had it insured but for a few weeks, if that, so they will not have one.   It is important that the buyer contact their insurance agent during the inspection period.  There is a central site that records all insurance claims on all homes, your insurance agent can access that site for an insurance history for you. 

Why is that important to you?    It will determine if you will be able to insure the property and what your rate will be.  Your insurance company has 59 days from when you purchase a policy in which to cancel that policy!!    They determine that cancellation  based on the possibility of future claims of a similar type to those in the past.  This is why you want your insurance company to access that history right up front, not in 59 days.

If the property has had severe water damage claims you will want to inspect those areas more carefully for mold.   Mold is a big bad four letter word that terrifies insurance companies.   If the property has had several break-ins,  you might want to have a security system installed.  Has the  home had a major fire?  There are all sorts of good reasons to know the insurance history of the property.

Also check out these posts:

The Foreclosure Transaction and what to know – part 1

The Foreclosure Transaction and what to know – part 3

 

 

The Foreclosure Transaction and what to know – part 1

Foreclosures are sold “as is”, which translates to “the seller is gone and we (the bank) don’t know anything about this property and we will not do anything if we find something amiss, you inspect it and either take it or leave it”.

It is the giant red flag telling sellers to be very careful and to get the best help they can in purchasing this home.

The basic home inspection:

You are permitted to do whatever inspections you wish on the foreclosure property.

The purpose of these inspections is not to find items for the seller to repair, but to find out what you as the prospective owner will have to repair.  Will the repairs found to be needed exceed your budget?

The general home inspector may suggest that a specialist in a specific field be called upon to further evaluate a situation.  It may be the air conditioner, the roof, the plumbing or wiring or any other system or situation. The home inspector does not give estimates for repair so if you require replacing or repairing anything, you will need time to get a tradesman in for an estimate.

In your purchase contract the standard default for inspection time is 10 days, we suggest you amend the contract to give you 15 days to complete your inspections and determine if you will go thru with the sale.    With the possibility of needing time to contact a specialist, get them to the house and come up with a report, you will want every extra day you can get.  The day count starts with the date of the last signature on the contract.  You may be responsible for turning on the utilities for the inspection, even though the contract may say that it is the seller’s job.    That takes a few days.  The gas company will not turn on gas unless someone is at the home to allow them to light the pilot lights, the water company will want someone there for turn on as well.

The bank as sellers will not do anything to correct any problems that have been found, nor do they warrant that there are no additional problems. They may occasionally,  but rarely,  agree to a decrease in price to compensate for the cost of a major repair needed.  They are totally washing their hands of anything to do with the condition of the property.  If termites are found, it is your problem, and it is still your problem even if your lender requires a “clear termite” report or a “clear roof report” (clear meaning that if termites were found they have been treated and if roof leaks were found they have been repaired).

When all the inspection reports are completed and estimates done you will have the opportunity to accept or decline purchasing the property.   If you decline, your deposit will be returned .  If you accept you do so with knowledge of what has been found and no warrants from the seller that there are not problems that are yet to be discovered.

Be sure to read these other posts as well:

The Foreclosure Transaction and what to know – part 2

The Foreclosure Transaction and what to know – part 3

Inspections and the “as is” addendum

There are lots of homes out there being sold “as is’.  With all of the foreclosures, short sales, and vacant homes where there is either no one, or no money to put into repairs, the houses are requiring an “as is” addendum added to the purchase contract.  One of the first questions I get is “Do we get to do any inspections?” YES.  The “as is” addendum is letting the buyer know up front that the seller is not in a position to do any repairs.  So what you find in your inspection process allows for you to consider moving forward or canceling the contract. 

Lots of those vacant homes have no power on as we are looking thru them.  Where carrying a flashlight was a safety item in my car, now it is a standard home showing addition.  I feel like one of those CSI’s wandering thru the crime scene, my eyes following the beam of light looking for clues. I digress…  The concern in homes without power on is also inspections.  “How do we inspect with no power?”  Great question.  Once we are in contract, we get he power turned in.  Many times the power is on, just turned off at the breakers, and the water is turned off at the house.  Gas is another issue.  It is almost always off.  There must be someone present when the gas is turned on, so the Gas Man can check for leaks, and get the pilot lites all lit correctly.

Because of these issues,  we (my mom ,my partner and  I) suggest doing a 15 day inspection  rather than the standard 10 days.  This gives us time to get the power, water and gas on.(can take a couple of days)  And gives you time to fully inspect.  The normal process is to have the home inspector and termite people come out, usually the same time,  Then if the home inspector finds anything requiring a more detailed look, there is enough time to get other trade specialist in to determine condition and cost of repair.  The home inspector only identifies issues needing care or maintenance not cost of repair.  Allowing for you the buyer to make the most informed choice about your new home as possible.

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