DEAR BENNY: In approximately one year, my wife and I are going to sell our house and move to Arizona. Selling the house is not a problem, but we have decided to rent out the next property we buy, whether it be a house or condo. We have already inquired about a real estate agent and we have talked to a friend of a friend over the telephone. We intend to meet with him on our next trip to Phoenix this year.
My question is: How do we determine what an appropriate fee is for this agent’s services? I know he will not do this house hunting for free, but is there a contract drawn up, is there a flat fee or is there a rate depending on the number of houses/units we look at? Are there other things we need to know ahead of time? –Patrick
DEAR PATRICK: First, I am glad to hear that you don’t think you will have problems selling your current house. That’s good news.
There are many things you need to know in advance, in addition to finding a good real estate agent. First, do you really want to be a landlord? Have you reviewed the landlord-tenant laws in Arizona? Are they pro-landlord, pro-tenant or neutral? I practice law in Washington, D.C., where the law and the courts are extremely pro-tenant.
If you are going to buy into a condominium (or homeowners association), do their rules permit owners to rent or are there restrictions? Because the secondary mortgage market (such as Fannie Mae and Freddie Mac) imposes restrictions on the number of owner-investors in community associations, many such associations have amended their legal documents to comply with these restrictions.
As for determining what the real estate agent will charge, just ask him/her to provide you with a written fee schedule. Such a schedule should be attached to a rental listing contract. For example, if a tenant calls in the middle of the night complaining that the toilet is not working, how much will this cost you? And more importantly, is this something the agent will handle or will you have to take care of it yourself?
Once you get the fee schedule, I suggest you contact other agents in the area and compare prices.
One final note: In today’s economy, it may be difficult for you to get a mortgage loan for investment properties. Unless you plan to use all of the sales proceeds for the new property, make sure you have lined up a potential lender before you embark on this journey.
DEAR BENNY: In a recent column on downpayment assistance you indicated that the $4,000 in excess of a $24,000 gift "may have tax implications" for the donor’s estate. Why couldn’t the mother give a gift of $12,000 to her son and $12,000 to her daughter-in-law and the father give another $12,000 to each, for a total annual exclusion of $48,000? Therefore, there would be no estate tax implications. –Gaylan
DEAR GAYLAN: The way I read the question is that the mother and father gave more than $24,000 just to the son. However, you are correct. The mother can give $12,000 to her son and the same amount to her daughter-in-law, and her husband can give the same amounts to each, thus avoiding any tax implications.
Please note that as of Jan. 1, 2009, the gift tax exclusion was increased to $13,000.
DEAR BENNY: In a recent column you answered a reader’s question about paying off his home mortgage. The reader wanted to know whether he should get back his original deed. In your reply, you said, "You want the lender to send you (1) the original promissory note, marked ‘paid and canceled,’ and (2) the original deed of trust (or mortgage document), again marked ‘paid and canceled.’ "
My wife and I paid off our mortgage with Bank of America in 2007, but we did not receive the items you mentioned. Bank of America did, however, file a "deed of release" with the county recorder of deeds. I’m wondering if that is enough or if I should contact the bank and ask for the original promissory note and the original deed of trust. –Herb …CONTINUED
DEAR HERB: I am not completely comfortable with this, but yes, it should be sufficient. Keep in mind that when you first obtained the mortgage loan, you and your wife signed two legal documents: (1) a promissory note, which states "we owe bank ‘X’ dollars"; and (2) a deed of trust, which is the security instrument that allows the bank to foreclose on you if you go into default.
Some states still use mortgages instead of deeds of trust. The main difference between these two legal documents is that a mortgage has to be foreclosed upon only after getting a court order.
With a deed of trust, you (the borrowers) actually deed your house to trustees selected by the bank, giving them the power to sell the property if you are in default. Your deed of trust has been released and is a matter of public record — i.e., among the land records in your county.
But the promissory note has not technically been canceled. I seriously doubt that anyone will be able to claim that you still owe on that note, as the trust has been released. But that possibility does exist. I am confident that you will win in any lawsuit against you on the note, but you would have to retain legal counsel and possibly go to court.
That is why I like to have the original note marked "paid and canceled."
DEAR BENNY: I have never had an opportunity to buy a home and would like to now, although I can’t afford much of anything in the standard market. I would like to find a bank-owned or foreclosed home. I realize this means I will have to order my own inspections because none will likely be done.
There is very little chance any problems that are found will be addressed by the owner, so most likely this will be an as-is purchase. The personal approach to finding an agent/broker has gotten me nowhere and I want to get going on this. How do I find an experienced agent/broker to work who knows this sector of the market? –Jim
DEAR JIM: First, you may want to contact some local banks to see if they have property for sale. Although there have been and continue to be lots of foreclosure sales, a good number of them were taken back by the lender. Quite often, when there is a foreclosure sale, either the bids are too low for the bank to approve or no one is interested enough in the property to make a bid. In those cases, the bank ends up owning the property; it is called "REO" — short for "real estate-owned."
Additionally, you can search for "foreclosure sales" in your area using a search engine on the Web. I just confirmed this by typing in "foreclosure sales in Maryland" and got a large number of places to investigate.
But let me caution you. Buying a house at a foreclosure sale should not be taken lightly. You really should get an attorney to assist you from the beginning of your search. You have to make sure that the title is clear before you bid at the sale.
You have to make sure that you fully understand the terms and conditions under which the sale is taking place. For example, if you are the successful bidder, will you be obligated for such items as unpaid water bills, superior mortgages (i.e., the foreclosure was initiated by a second mortgage holder), or mechanic’s liens?
Keep in mind that once the gavel goes down at the sale, you are legally obligated to buy. If you do not do so or are unable to meet the lender’s deadline, you may lose your earnest money deposit.
DEAR BENNY: Your recent response to a writer who complained about having to pay a penalty fee for paying off his home mortgage early puzzled me. Over my lifetime, I have paid off many mortgages early and have never had to pay the holder a "fee."
They merely forwarded me the documents marked "paid in full." It was then up to me to have them properly recorded in city hall. Sometimes, I had to pay a small fee to the city. Perhaps things are different in Washington, D.C., and Maryland? –Bob.
DEAR BOB: There are two kinds of "fees" that borrowers may be charged by lenders when the mortgage loan is paid off in full. First, some lenders will charge a nominal fee for preparing the release of the loan, although as you suggest some lenders will just send you the mortgage documents and you have to record the release yourself.
But some loans contain a "prepayment penalty" clause. This means that if you pay the loan off early, you will have to pay a "penalty." Borrowers are encouraged to review the loan documents — especially the promissory note that is signed — because that is where the penalty clause usually can be found.
In fact, before you get a mortgage loan, ask your lender if there will be a penalty should you be able to pay the loan off early.
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 firstname.lastname@example.org.
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