Seller financing can be disastrous in down market

Q: I am purchasing a home with a seller-financed contract. The seller still has a mortgage through the bank. I received a notice in the mail addressed to the seller that he is behind in payments and to contact them to avoid foreclosure. I left him a phone message regarding this notice, but have not had a response.

It's been two months, and now a notice was left on my door from a field inspector for the mortgage company. It appears the house is in foreclosure. Should I stop making my payments to him, since I am completely current, or should I file some type of lawsuit? Please tell me what to do.

A: Run to an attorney as fast as possible. It appears your seller is taking your money but has stopped paying his lender. If the lender forecloses on the property you may stand to lose everything you put down so far.

When you buy real estate on contract, you need to make sure any lender on the property receives prompt payment of any amounts owed under the mortgage, that the insurance on the home is paid and that the real estate taxes are paid on time. Failure to have any of these taken care of can be a disaster for both the contract seller and the contract buyer.

Your purchase contract may have some language to guide you in what you should do. You may be able to make your payments to the lender instead of making payment to the seller. But if the property is in foreclosure, you first need to find out how many months your seller is behind on the mortgage. It may be worth it to you to pay what is owed to protect your own interests in the property.

You really need a lot more information and will need to do some investigation. If you know what your seller pays on his mortgage is less than your payment to him, you might be able to make those payments. If his payments are way higher than your payments to him, you may be in a difficult spot.

There are different scenarios and you need to sit down with an attorney with as much information as you can get to try to see where you stand. You may come out OK if you caught this early enough. If your seller owes months and months of payments to the lender, you may lose the house and may end up losing what you have paid to date on the home.

Depending on the circumstances, you may be able to negotiate with the lender and if you are prepared to buy the home now, you may be able to exercise your rights under the installment contract and close on the house early.

Because installment contracts can have varying terms and provisions, it is difficult to tell you what path you should take. But an experienced attorney with extensive knowledge of real estate and lender practices is the right start.

Q: I own a condo unit. I paid my association fee late by one day so I was charged the late fee of $50 called for in the bylaws. The following month I paid all payments "on time" but forgot to pay the $50 fee.

Basically the only thing unpaid was the $50 late fee, but I was still charged $50 every month after the first month. I read and reread the governing documents and there is only the statement about a $50 late fee if the payment is late but says nothing else at all concerning fines for missing a "late fee." Can they charge a late fee for an unpaid late fee when all regular payments are on time?

A: You have certainly fallen into the late-fee trap. A payment will be considered paid on time when it is paid in full. When you were late on that first payment, your account had an obligation due equal to the amount of your monthly payment plus $50. The following month you paid your monthly payment, but your account was still short by $50. Because the account was short and not paid in full, you did not pay the full amount owed on time.

In some circumstances, you can get the association to waive that second late fee and you certainly should try. They would not be obligated to waive the second fee, but they might.

Because of the amount ($50), it may not be worth hiring an attorney to spend a lot of time reading up on your state laws regarding condominiums and late fees and how and under what circumstances they can be assessed. You could look up the laws on the Internet.

Keep in mind that credit-card companies have been handling their accounts this way for years. If you charge $1,000 in the first month you have the card and don't pay it in full, the credit-card company will charge you interest on all of the purchases you made from day one. If you charge $1,000 the second month and add the amount you owed on the prior month, you will continue to pay interest on the entire bill until you net the account to zero and start over.

What you need to do is to pay down your condominium bill in full so that the account falls to zero.

To get even more valuable advice from Ilyce, visit her Personal Finance and Real Estate Center.

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