looking up at a tight rope walker against a blue sky

Should You Waive Your Financing Contingency?

by Joshua Blumen on Wednesday, June 6th, 2018

Shopping for a home? Get ready to deal with a market where Sellers are calling the shots — and have their pick from multiple and increasingly competitive offers.

No one likes to lose a bidding war. But sometimes offering to pay more isn’t possible. The good news is that there are other ways to make your offer stand out from the competition.

One common offer strategy is to waive your financing contingency. But you’d better know what you’re doing. In the heat of a bidding war, the fear of missing out can drive otherwise reasonable people to make impulsive decisions that can have serious consequences.

Does waiving your financing contingency make sense for you? Here’s what you need to know and what to watch out for.

What Does It Mean?

The financing contingency protects the Buyer from losing their down payment deposit if their lender does not come through with the financing. It’s a standard feature in most Offers and Purchase and Sales Agreements. Think of it as a safety net for your deposit.

How it works: Your Offer to Purchase is contingent on your lender’s written commitment to give you a mortgage by a specific date. If your mortgage is not approved for the amount of financing you need, the Seller agrees to refund your deposit in full. In other words, if you make a $75,000 down payment, and the bank says “no” out, you can walk away with your $75,000.

When you waive your financing contingency, you’re forfeiting your deposit to the Seller if your lender backs out. In other words, you’re walking a tight rope without a net.

What Can Go Wrong?

The standard financing contingency means that if the Buyer’s financing falls through, the Seller is left with nothing but wasted time and opportunity. Waiving your mortgage contingency reverses this dynamic. Now you’re assuming all the risk — and the Seller keeps the house and your deposit.

Losing your deposit is the most obvious pitfall of waiving your financing contingency. But it’s not the only one. This strategy can also cost you a lot more money if the lender’s appraisal comes in lower than expected.

Let’s say the lender has pre-approved your purchase of a home for $1,000,000. Assuming you make a down payment of 20% or $200,000, the lender will finance the remaining 80% or $800,000.

Your financing may be pre-approved — which helps support the strength of your offer — but it is not guaranteed unless the lender’s appraisal verifies the valuation. Because the lender wants to make sure that the asset they are investing in is worth their lending risk.

If the appraiser’s valuation satisfies the lender’s tolerance for risk, you’ve got the loan. But if the appraisal falls short of the purchase price, you’ve got a problem. Here’s why:

When an appraisal comes in low, the lender moves to reduce their risk. If the numbers are too far apart, the lender may deny financing altogether, sending you into a desperate frenzy to find financing before the deadline — and leaving your $200,000 deposit hanging by a thread.

The more typical scenario, however, is that the appraisal is lower, but not so much that the lender pulls financing altogether. Instead, the lender is likely to reduce their risk by (a) reducing the amount of financing they are willing to extend; (b) increasing the interest rate; or (c) both of the above.

All of which means you are going to pay a lot more for the property than you planned.

First, you will have to come up with more cash to cover a larger down payment. For example, if the appraisal comes in at $900,000, your lender will only finance 80% of $900,000, or $720,000. That leaves you to cover the down payment gap between the purchase price ($1,000,000) and your financing ($720,000), which is now $280,000.

If your lender also bumps up your interest rate, you can also count on higher monthly payments for the life of your mortgage.

That’s what can happen when you waive your financing contingency. It’s not hypothetical. I’ve seen it. And it’s not pretty.

How to Minimize Your Risk

Having said that, in sea of competitive offers, waiving your financing contingency can be effective. Here are some tips to help minimize your risk:

  • Have a long talk with your loan officer. Make sure you have a very clear picture of your finances, including your credit score.
  • Have enough money in reserve. If your credit score dips or you deplete your cash assets between the time you apply for the loan and your closing, that’s enough to get you rejected for a loan.
  • Listen to your loan officer. They’ll tell you not to buy or charge anything until closing – and definitely don’t open up a new credit card.

Buying a home in Massachusetts? Get the legal help you need. For more information, contact the Law Offices of Joshua Blumen, P.C. 781-784-2500.

Owner’s Title Insurance: What is it and why do you need it?

by Joshua Blumen on Wednesday, April 25th, 2018

You’re about to close on the sale of your home. The buyer has lined up financing. You’ve lined up the movers and the final walk-through. Everything is on track and on time.

Until you get a call from your attorney. There’s a problem with your title — and it’s complicated. The bottom line: You aren’t closing on time. In fact, until you solve your title problem, you aren’t closing, period.

Now what? Well, that depends. If you have an Owner’s title insurance policy, all the costs of fixing your title defect are covered.

If you don’t have Owners title insurance, you’re on the hook for all costs to get your title free and clear. That can easily add up to thousands in out-of-pocket legal fees — if you’re lucky. Complex cases can easily run to tens of thousands. And in extreme cases, you could lose your equity and your home.

What is Owner’s title insurance?

It’s an insurance policy that protects the integrity of your title, the legal document that says you are the rightful owner of your home.

When can you buy Owner’s title insurance?

The time to buy Owner’s title insurance is at the closing when you buy your home.

Why do you need Owner’s title insurance?

As part of the closing process, a title search is performed that goes back at least 50 years to verify that the title is “free and clear” from claims. But what if the title search misses something? Or one of the documents you relied on to establish clear title turns out to be a forgery? And what if — like most homeowners — you don’t discover this problem until you go to sell your home?

That’s the value of Owner’s title insurance: It protects you from things that may have happened before the property became yours. If there’s a claim against your rightful ownership, title insurance will protect and defend you – with letters and lawyers (and court, if necessary). Find out there’s a long-lost heir who says your house is his house? Covered. Forged signature from a prior owner’s deed? Covered. Old tax liens that should have been paid before closing? You’re covered.

Title problems don’t discriminate. They pop up in titles for single family homes, condos, and investment properties. I’ve found title problems in new construction. And I’ve discovered title problems in a property that was in a client’s family for as long as anyone could remember. Where there’s title, there is always the risk of unforeseen problems.

Aren’t I already paying for title insurance at closing?

If you are buying your home with a mortgage, the answer is yes. Your lender will require you to buy a Lender’s title insurance policy. But the Lender’s policy only protects the lender’s interest in your home — not yours. To protect your interest, you need an Owner’s title insurance policy.

Here’s the good news:

  • Unlike homeowner’s or auto insurance, which you pay each and every year, you only pay for Owner’s title insurance once.
  • The cost is paid at closing as an item on your settlement statement.
  • The one-time premium is based on the purchase price of your home.
  • Owner’s title insurance lasts as long as you own the property.

Your home is going to be one of your most expensive investments. Make sure you protect yourself with an Owner’s title insurance policy at closing. It’s an easy, one-time payment for long-term peace of mind.

Buying a home in Massachusetts? Get the legal help you need. For more information, contact the Law Offices of Joshua Blumen, P.C. 781-784-2500.

The Homeseller’s #1 Closing Nightmare — and How You Can Avoid It

by Joshua Blumen on Monday, April 16th, 2018

You know the expression “It ain’t over till it’s over?” Well, it applies to selling your home, too. Things can and do go wrong at the last minute. And it’s not always a bolt from the blue that derails your closing.

In fact, the most common closing day nightmare for sellers isn’t something dramatic, like the buyer’s financing falling through. It’s failing to leave the house in “broom-clean” condition.

I know it’s hard to believe that such a mundane phrase can cause such chaos. But I’ve seen it happen time and again.

Broom-clean condition,” which is the exact phrase likely to be used in your Purchase and Sales Agreement, means that you have agreed to leave your home for the buyer as if it has been swept with a broom.

To meet the broom-clean requirement, you don’t need to hire a professional cleaning crew (but that’s not a terrible idea if you want to be really sure). You don’t even have to sweep it with a broom. But you do have to get all of your stuff out. And that means all of your stuff. Cabinets and storage spaces in the house and the garage should be empty. All trash and debris should be removed. Nothing should be left behind for you to come back for later – because later this won’t be your house.

What should you leave behind? Only those items listed in your Purchase and Sales Agreement, such as keys and garage door openers, and anything else you have specifically agreed to leave, like a refrigerator or washer and dryer.

Don’t assume your buyer wants those extra roofing shingles or your old gas grill propane tanks, either. Unless it’s on the “agreed to leave” list, that stuff goes.

Not cleaning the house isn’t the only way sellers fail to leave the home in broom clean condition. Sometimes in the mad dash to get those last few things into the car or moving van, you scratch a floor or crack a tile. Or break a window. Or you (accidentally!) put the leg of a chair through a wall. Like I did. Twice.

How can you avoid this entirely avoidable closing nightmare?

  • Take the “broom clean” requirement on your P&S Agreement seriously — because your buyer will. Buyers are nervous enough as it is. Why give them any reason to be suspicious about your attention to detail — and any reason to look more carefully for what else isn’t the way it’s supposed to be?
  • Plan ahead. Don’t wait until the last possible moment — the buyer’s final walk-through — to broom clean your house. Buyer’s don’t want to see your old stuff in their new home. And not just because it feels intrusive. They want to make sure there are no problems hiding behind any of your stuff. (Like a couple of chair leg holes in the wall, for instance.)
  • Keep your agent and your attorney in the loop. If you even THINK there’s a chance you won’t have your house broom clean in time, tell them — and the sooner the better. In nearly all cases, your agent and attorney can help negotiate a solution that will allow you to close on time. But they can’t solve problems they don’t know about.

Selling your home in Massachusetts? Get the legal help you need. For more information, contact the Law Offices of Joshua Blumen, P.C. 781-784-2500.