DEAR BENNY: We just received an offer on our home. It is a cash buyer with a 30-day closing and seven days for inspections. My wife and I waited until we had a good offer to look for a new home. We now feel like we made a big mistake and would like to get out of our contract. Is this possible? My wife has been ill and the idea of moving is making her feel worse. –Michael
DEAR MICHAEL: Getting out of a signed legal document is not easy. You have "seller’s remorse," but you have a binding contract with your potential buyer.
When a buyer defaults on a real estate contract, the seller generally has three options. He can (1) keep the earnest money deposit, (2) sue the buyer for damages, or (3) sue for specific performance. When I represent buyers, I generally limit their liability — their exposure — to the loss of the deposit.
When I represent sellers, I urge them to get a large deposit just in case the buyer defaults. Litigation is always time-consuming, expensive and uncertain, so keeping the deposit usually is in the best interests of the seller.
When a seller defaults, the buyer has the same three remedies. If my buyer client is willing to file suit, I often file for specific performance. That puts a cloud on the seller’s title and the house cannot be sold until the lawsuit is resolved. And typically, a seller has received a better offer and that’s the reason for the "default."
But your case is different. You made a mistake and now want to stay in your home. I suggest you contact the buyer directly and avoid using the real estate agents as an intermediary. (Of course, if the buyer does not want to talk with you, you will have to go through the agents.)
The buyer may be sympathetic. But the buyer may also be upset that he has lost a good bargain, and you may have to pay the buyer some money to get out from under the contract.
There also may be some loopholes in your sales contract. I suggest you contact a real estate attorney in your area who may be able to provide you with specific guidance.
DEAR BENNY: I am an 80-year-old woman who lives in a townhouse community with 78 units. We pay $75 a month in homeowners association fees, which is up from $60 and poised to go higher.
Our board officers decided they should be paid a monthly fee. There are four other complexes that pay only $60 a month and their officers do not get paid. The president is awarded gift certificates from the board for anything she does. In all of my life I have yet to hear of a volunteer given a salary. Have times changed that much? –Jane
DEAR JANE: No, times have not changed; greed and incompetence have been with us for a long time. The issue of whether board members should get paid is a hot one around the country. Board members complain that they work hard for no pay.
But, typically your state law (or your legal documents) will have a prohibition against board members receiving compensation for their services. They can be reimbursed for legitimate expenses they may incur, but if the bylaws prohibit such payment, the board cannot unilaterally vote to amend the bylaws.
It usually takes a super-majority vote (66 2/3 percent or even 75 percent) of all the owners to amend the legal documents. And from what you have advised me, no such bylaw amendment was ever presented to the owners.
But even if the bylaws are silent, I don’t believe a board has the right to vote to pay themselves without getting approval from the owners. After all, they ran for office knowing that they would not get paid, and the members have the right to rely on their vote. More importantly, it’s your money they spend — not their own.
I am, of course, sympathetic to the concerns of those board members who do put in long hours on behalf of the association. But they are serving to protect the interests of all unit owners — not just to get a paycheck. I don’t think that board members should get paid. …CONTINUED
DEAR BENNY: I am a senior citizen who is literally being priced out of my home of 10 years due to the consistent shortage of my escrow account. I asked my lender to remove the escrow account from my home loan but was denied. The lender said that although it understands my desire to establish payment of property taxes on my own, its policy is to maintain an escrow account on all loans where an escrow account was required at the time of closing.
My issue is not about having an escrow account. My issue is that every year I am faced with an escrow shortage that affects my monthly mortgage payments. What I don’t get is why the mortgage company routinely estimates my account too low. Property taxes go up every year and obviously enough money isn’t being collected; otherwise, there wouldn’t always be a shortfall. And what I also don’t understand is if I have paid the entire escrow shortage, why is my monthly mortgage payment being increased as well? –Carol
DEAR CAROL: There are two reasons why I do not like the idea of having to give a lender one-twelfth of my annual property tax and insurance bill. First, most lenders do not pay interest on these escrowed funds, but clearly have the use of the money for a good part of the year.
Second — and perhaps more importantly — I have had too many clients whose lender either did not pay the real estate tax at all or was late in making the payment.
Many years ago, I was successful in getting the law in Washinton, D.C., changed, so that if you get a loan of not more than 80 percent of the purchase price of the house, you have the absolute right to pay your own real estate taxes and insurance without escrow.
But that’s not the law in most states. Lenders do have the right to escrow for taxes and insurance. In fact, you may have heard lenders talk about PITI — which means your monthly payment includes loan principal, loan interest, property taxes and home insurance.
In your situation, while I understand your concerns, I cannot agree that your lender is pricing you out of your house. Unfortunately, it is the real estate tax that you have to pay — whether directly or through escrow — that is causing you pain.
Instead of trying to fight your lender — which probably won’t work — I suggest that you determine the amount of your real estate tax (and insurance if applicable) and budget this on your own. If, for example, you know that one-twelfth of your next real estate tax bill will cost you $100, but if you are sending your lender only $80 a month for escrow, put aside that extra $20 into a savings account. At the end of the year, if the lender comes up short, you will at least have the money to pay the deficit.
Additionally, you should check with your local taxing authority. Many states and counties have programs whereby senior citizens can get a break on the amount of the real estate tax they have to pay.
DEAR BENNY: What monthly bills do I have to pay in a condo? How might I best go forward? –Peter
DEAR PETER: If you are borrowing money to buy that condominium unit, you will have to pay PIT. That stands for "principal, interest and taxes." If you were buying a single-family house, we would have to add "I" to this list — namely insurance.
In addition to the monthly mortgage payments, you will have to pay a monthly (or quarterly) condominium fee. The fee is calculated by taking the percentage interest you own in the association (which generally can be found at the end of the declaration) and multiplying it by the annual association budget.
Before you buy a condominium unit, you must review the financial situation of that association. Does it have adequate reserves? What is the level of delinquencies? And if you are buying a new unit from a developer, I can almost assure you that the projected budget has been lowballed to make the purchase more attractive. However, once the unit owners elect their own board of directors, they often realize that they have to significantly increase the budget — and thus your monthly assessment.
Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to benny@inman.com.
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