home

Check Out That College Condo

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | May 30th, 2014

Purchasing an apartment for Junior or Buffy at the college of their choice is often a sound investment.

Giving the offspring a place to live eliminates the cost of boarding the little darlings. And if the condo is large enough -- say, two or three bedrooms -- the extra rooms can be rented to other students to help defray the cost of ownership.

Moreover, over the four-year span until your child graduates -- and often a year or two longer these days -- your investment is likely to appreciate. Although rising values are not guaranteed, housing near universities and colleges is usually a scarce commodity. If that's the case where your kid chooses to matriculate, the law of supply and demand is the rule, not the exception.

Still, while buying a condo as an investment near a college is not terribly different from buying one elsewhere, a more thorough diligence is often due.

Here's one caution that probably never entered your mind: Is the campus likely to remain where it is and not move to another location?

Most likely, it will stay put. But it's not unheard of for a campus to be closed in one place and reopen somewhere else, says Dan Barnabic, author of "The Condo Bible for Americans" (Neon-Publishing Corp., 2013).

It's fairly simple to find out if a move's afoot sometime in the near future. Simply call the registar's office, or perhaps the school's president, and ask.

But remember, the time frame that you hold the place might be somewhat longer than four years, and even longer if owning a rental apartment turns out to be a strong investment -- as opposed to one that just breaks even, or worse, loses money.

The Toronto-based Barnabic, a former real estate agent, broker, manager and condo developer, also wants you to beware of buying into a financially troubled or poorly managed property.

"If there has been mismanagement or the building is in financial distress," he says, "you could wind up paying dollars to replace the dollars someone else squandered."

To prevent that, he suggests standing outside the building and asking residents as they walk in and out about their experiences. Are there any maintenance deficiencies? Is management responsive? Are battles raging between neighbors -- or perhaps more importantly, between board members who are elected to run the complex and make sure the rules are followed?

Next, obtain an estoppel certificate, a document similar to a survey for a single-family property, that shows the unit, the maintenance fees, the amount of the building's debt and any assessments that are either contemplated or already set in stone.

It is most important to pay attention to the annual budget. If the budget or reserve is underfunded, you as the owner will be responsible for making up your share of the shortfall.

The author also advises potential condo-buyers to obtain a status certificate on the unit they are thinking about purchasing and submit it to a knowledgeable attorney for a thorough investigation. Here, it is worth paying $100 or more to the board to cover your lawyer's fees to determine if there are any outstanding liens against the unit, and whether you will have to pay them.

If there are liens for unpaid monthly or quarterly dues, maybe the board will be open to negotiations to wipe the slate clean. This would let them turn an otherwise non-paying apartment -- a drag on the books -- into one that pays its dues and assessments on time without a peep.

Similarly, Barnabic says you should gain approval from the board, if it is necessary, to check with the municipal zoning and planning department to be sure there are no pending work orders or infractions against the condo complex for violations of local building codes.

And while you're at it, ask the zoning or permit department if there are any new buildings planned in close proximity to yours, either in this complex or adjoining ones. If there are, your unit's value could be diminished not only by obstructed views, but also because newer units are always more desirable.

Consider investing in those new properties as they go up. Remember, even budgets for brand-new buildings are underfunded, especially if the developer wants his place to look as good on paper as possible. If that's the case, your share could double or even triple when the builder finally turns the property over to the condo board.

One more thing: People who buy larger units with the idea that their sons or daughters will act as their on-site property managers sometimes find out later that that kind of arrangement just doesn't work. That's especially true, says Barnabic, when the people who lease the extra bedrooms are friends.

Kids, even those of college age, are not usually very good property managers, he says. "To do a proper job, they must be diligent in collecting rent, maintaining the apartment and refereeing inevitable disputes between roommates. In other words, they must be responsible, and that's not always the case."

home

Beware Delayed Occupancy

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | May 23rd, 2014

When Lexington, Kentucky, broker Nick Ratliff purchased a short sale last fall, the seller informed him that she wasn't going to move out until a week after the closing, when her new apartment would be ready for occupancy.

To complicate the matter, the seller's lender said it wouldn't extend its approval of the sale beyond the scheduled settlement date.

Still, Ratliff held his ground, insisting that the bank either give the parties one more week to settle or that the seller move as originally planned. "We stood strong," he recalls. "And after a few conversations with the bank, we got the short sale approval extended and everything went fine."

But that begs the question: Why not just allow the seller to stay in the house another seven days? Wouldn't that have been easier? What's the harm?

As it turns out, allowing a seller to remain is not a very good idea, and it's one that realty professionals almost universally warn against. It's also not terribly wise to allow the buyer to move in prior to the closing, agents in the trenches advise.

"Anytime the situation comes up, I always ask my client if they want to rent the property or sell it," says Ratliff. "By allowing a buyer to move in prior to closing or letting a seller stay post-closing, both parties are entering into a landlord-tenant agreement. This changes the entire dynamic of the relationship and adds so many more potential outcomes to the process."

For sure, the result can be a positive one. But "too many disasters can happen," cautions Bruce Lynn of Keller Williams Realty in Coppell, Texas, who suggests "never allowing the buyer to move in early."

"NEVER, EVER," Lynn says emphatically. "And while we're at it: no early contractors, either."

One thing that could go wrong is the buyer's financing. Since the house would not be owner-occupied, at least not for the period beyond the closing when the seller remains, it would be an investment property, and the lender might balk at backing a rental.

At the very least, the terms of the loan might change, with the lender calling for a larger down payment and a higher interest rate.

Insurance could turn out to be a nightmare as well. The buyer's insurance probably won't go into effect until he actually takes occupancy, yet the seller's coverage lapses at closing. Consequently, there is no coverage during the delayed occupancy. So if there is a fire during that time, who's going to cover the damages?

OK, a fire may be stretching it a tad. But what if there's an accident on the property?

Consider these other drawbacks to letting a seller stay put post-closing:

-- What if the seller's deal on his new place falls through? He would have no place to go, and would likely refuse to move until he can find another residence.

Similarly, what if the seller loses her financing, or the closing on her new place is delayed? Again, she'd have little choice but to stay put, and the buyer could not take occupancy even though he is now the legal owner of the property.

-- What if the seller damages something during his extended stay, or an appliance breaks down? Who's going to pay for that: the new owner-as-landlord, even though she's never lived in the house, or the seller-tenant? Generally, it's the landlord's responsibility.

-- Suppose the tenant leaves the house a mess when he moves out, or fails to pay for the utilities or mow the lawn. Will the owner have any recourse?

-- What if the seller refuses to pay for the time he remains as a tenant? You've already closed, so the only recourse would be to take him to court.

-- What if the seller doesn't stay for as long as she said she would? Certainly, she'll want a rebate on her rent.

Similar questions arise when it comes to allowing the buyer to move in prior to the closing:

-- What if his financing falls through? Perhaps he no longer qualifies because his credit score has fallen, or maybe the house fails to appraise. In either case, he's already taken occupancy and you're no longer a seller -- you're a landlord.

-- What happens if the buyer discovers things she doesn't like, but never noticed until after moving in? Worse, what if she finds a major issue that by law should have been disclosed, but wasn't?

-- What if the buyer damages a house that is not yet his? Or what if his movers damage something while he is moving in?

-- What if the buyer refuses to pay for the time she occupies the house as a tenant? She's already in the place, and you'll have a difficult time evicting her for nonpayment of rent.

-- What if an item that should remain with the house -- a chandelier, for example, or curtains -- disappears between the time the buyer moves in and the closing? Who's responsible?

Fortunately, all of these issues can and should be addressed in a written rental agreement between the two parties. If you don't have a written agreement, says Ratliff, "any misunderstanding can take a good deal bad very quickly."

Obviously, there should be a firm and stated limit on the time the seller will remain. And the buyer should require that a substantial amount of the purchase price be withheld from the seller at closing to serve as security.

When the seller finally vacates the property, the money can be released -- but only following a second walk-through after the seller leaves. This way, if the house is damaged in any way, there will be money set aside to pay for the repairs.

Still, the best advice is to delay the closing until the seller can clear out. A rental agreement does not insulate you from responsibility for the property. Once the place is yours, it's yours, whether you have occupied it or not.

"The key is having all parties on the same page," says Retliff. "But the 'what-ifs' of these situations always scare me. When someone else is occupying your home for any period of time, you lose power ... I'm never going to encourage my client to do that."

home

The 'Pain Points' of the Closing Process

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | May 16th, 2014

It is often said that the closing process is second only to a death in the family in terms of stress.

Here it is: the end of the line for buying a new home. You walk into the settlement office and are faced with a stack of papers you do not understand. You have maybe an hour to look them over and sign or initial each one, finalizing what is probably the biggest financial decision you will ever make.

No wonder more than half of all recent buyers in a survey conducted for Chase, the New York commercial bank, wish they had been better prepared for the entire home-buying process. A good many specifically cited the closing as a problem area.

A lot of that consternation should go away beginning in August 2015, when lenders will be required to provide borrowers with a new closing disclosure form at least three full business days prior to closing.

The new form will combine two important documents -- the Truth in Lending (TIL) statement and the HUD-1 closing sheet -- and will give borrowers some breathing room to review the numbers and ask questions.

But that's only one of the so-called closing process "pain points" identified by the Consumer Financial Protection Bureau in a recent report. Here's what to expect when you close on your new house:

-- Numerous documents. The sheer size of the closing package is formidable and often overwhelming. The number of documents can range from 50 to 100 pages -- sometimes more, according to the CFPB. Together, they act as a complex set of alternating pieces, each contingent on many variables associated with the mortgage.

Documents in the closing package tend to fall into four categories: federally mandated, state mandated, contractual forms and lender documents. But very often, they are redundant.

Two of the largest contributors to the number of forms are state governments and Uncle Sam. About 95 percent of all home loans are originated in states that require additional documentation over and above what the lender needs. And different versions of essentially the same document are often required for loans backed by the federal government.

-- Incomprehensible. A frequent consumer gripe is that the documents range from difficult to understand to downright incomprehensible, and a good many settlement providers agree.

Typically, the documents are designed by and for lawyers, not for the average borrower. In particular, according to the CFPB, the note, security instrument and the aforementioned TIL statement and HUD-1 form are all heavy with legal jargon or confusing terms.

The agency conducted extensive consumer research to design the new integrated closing disclosure, which must be used starting next summer. But many other forms are confusing, adding to stress at the closing table.

-- Timing. In its year-long look into the closing process, the CFPB found that the timing of document delivery wasn't just an issue for consumers. It is even a challenge to notaries and settlement agents.

Closing documents change hands many times before the big day, and a frequent complaint the CFPB heard was that the previous party in the process often delivered documents behind schedule. Such delays can cause a domino effect, pushing back each subsequent step and forcing each party to rush through the documents and send them to the next.

-- Errors. Often, the rush to get the package to the closing table on time results in errors, yet another pain point. Even a small slip in the paperwork can result in long delays. Even a common error, such as a misspelled name or an omitted spouse, requires closing agents to send back the entire closing package for correction.

If one or more errors aren't discovered until the closing -- a frequent occurrence -- the transaction cannot move forward as scheduled. You'll have to wait several hours for the mistakes to be corrected, and sometimes you might have to return another day to complete the process.

That creates a particular hardship for buyers who have the kids on their arms and the moving van waiting to drop off their furnishings at their new digs.

-- Too fast. Another point commonly cited by consumers is that the 60 or 90 minutes reserved for the closing is hardly enough time to read and digest all of the documents. Even when consumers encountered discrepancies that made them uneasy, the CFPB found, they often felt pressured to sign the papers during the allotted time to avoid delaying the closing or even losing the house.

The agency found that the allotted time to review and sign all the papers is particularly insufficient to make certain the fees and rates on the closing sheet -- the HUD-1 -- match those quoted by the lender in the Good Faith Estimate they received when they applied for the mortgage.

Again, that should become much easier when the new, combined disclosure form takes effect. Until then, borrowers would be well-served to demand that their lenders give them as many documents in advance as possible, so they have time to read them, ask questions and digest their meaning.

You probably won't be able to get your hands on every piece of paper in the closing package early. But at the very least, you should receive the standard disclosure forms that require nothing more than a read and your signature.

If you wait, you could easily be overwhelmed.

Next up: More trusted advice from...

  • Poking and Clicking
  • Friends Like Angel
  • A Great Time to Get Old
  • How Confident Are You About Retiring?
  • How To Find a Retirement Investment Adviser
  • Volatile Markets Put Personal Planning to the Test
  • Aiding Animal Refugees
  • Contented Cats
  • Pale Gums: What They Mean
UExpressLifeParentingHomePetsHealthAstrologyOdditiesA-Z
AboutContactSubmissionsTerms of ServicePrivacy Policy
©2022 Andrews McMeel Universal