DEAR BENNY: When do you see the bottom of the real estate market happening? When do you think we will have appreciation again? What is the best way to buy REO properties? –Tom
DEAR TOM: That’s the $64,000 question. In an answer to another reader, I said that I now have two crystal balls on my desk, and they remain cloudy and uncertain. Honestly, your guess is as good as mine. As you probably know, not every community in the United States is facing housing problems; I have been reading that in some parts of the country, real estate sales and prices are strong.
You asked about buying REO properties. For my readers who do not know what this means, it stands for “real estate owned.” When a bank forecloses on a mortgage — or when the bank takes back a homeowner’s property by way of a deed in lieu of foreclosure (commonly referred to as a “deed in lieu”) — the bank owns that property, and it is called REO. Most banks do not want to own REO properties because it impacts on their financial status, and more importantly they have to start paying insurance and real estate tax.
So, banks want to sell those properties as quickly as possible. How do you go about buying them? Many real estate agents and brokers have relationships with banks, and may be able to assist. You can also talk to the banks directly to inquire.
However, you should retain legal counsel to assist you. You want to make absolutely sure that should you be successful in buying such REO properties that you will get good, clean, insurable and marketable title.
DEAR BENNY: I am considering buying a distressed property. What should I look for when choosing a contractor and in negotiating the contract? I would like renovations to be completed within 12-18 months. Can I enforce this timeline? –Cyril
DEAR CYRIL: Whether you are buying distressed property — or any property for that matter — and want to do construction/renovation, there are several things you should do.
Check with your county or state licensing office. Do home-improvement contractors have to be licensed? If so, insist on seeing a copy of the contractor’s license, and confirm with the agency that issued it that it is valid.
Do not sign what I call a “one-page special” — in other words, a contract that is only one or two pages, especially if your renovation job will be at least $5,000 or more. The American Institute of Architects has a number of sample contracts, which I believe you can obtain (perhaps even purchase) online. They also may assist you in locating a licensed architect in your area, should you need one.
Your contract should have at least the following: a complete description of what work will be done; the total cost; a payment schedule (do not overpay and keep between 10-15 percent in reserve to pay when you are completely satisfied that the job is finished and acceptable to you); and a termination provision should you find that the contractor is not showing up on the job or not doing a good job. The AIA contract contains these requirements, plus a lot more.
You asked if you can enforce your timeline. The answer is yes. I generally recommend that you agree to pay the contractor a bonus (to be determined between the two of you) for early delivery — say $100/day up to a cap of 10 days. Furthermore, include in the contract a provision that if the contractor does not complete the job on time, that you will deduct $100/day, but with no cap.
Some contractors will accept the bonus-penalty concept, and that is clearly your right to insist on such a provision.
DEAR BENNY: My neighbors bumped out their house from the back, which affects the privacy we used to enjoy from our quiet backyard. Is it legal to put up a fence between our two houses? This may partially block their view of the woods behind our houses. –C.P.
DEAR C.P.: Despite the fact that our homes are supposed to be our castles, there any many governmental restrictions that may impact your ability to erect that fence. The answer should be available from your county or state zoning office. You may need to obtain a permit to build the fence. And to try to keep a decent relationship with your neighbors, you should discuss your plans with them. They may even be willing to share the cost of the fence.
By the way, I have never heard of a house being “bumped.” I like that word and plan to use it in the future.
DEAR BENNY: I live in a condo in Maryland. The bylaws were amended by the HOA council, before our ownership, to restrict rental of units to family members only. Is this allowed? –Dennis
DEAR DENNIS: The laws relating to community associations (including condominiums and homeowner associations) are very clear: Anyone who lives in the community is subject to the rules and regulations of the association, including any properly amended regulations — such as a rental restriction. When you bought your unit, I must assume that the rental restriction was part of the condo documents that you received before you went to settlement. Since I am familiar with the laws in the state of Maryland, before any owner can sell his or her unit, the prospective buyer must be provided with what is known as the “resale package,” which includes the legal documents. You had a number of days in which to review all of those documents and cancel your contract if you had any concerns. Since you decided to buy, you are bound by those rules and regulations — including the rental restrictions.
Many states have this “resale package” requirement. Every potential condominium or homeowner association purchaser must carefully read all of the legal documents of that association before going to settlement.
It should be noted, however, that court case law throughout the country makes it clear that for a rental restriction to be valid, it must be incorporated into the declaration or the bylaws of a condominium — which means that these legal documents have to be amended by a super-majority vote of the members, It is not sufficient merely for a board of directors to enact such a restriction through a rule change.
Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. Questions for this column can be submitted to firstname.lastname@example.org.