How often in our lives do we take things for granted? How many times does it seem to happen that if we do nothing, the problem some how takes care of itself . . . it just seems to go away. We have, I think, all experienced this phenomenon and for many for us it works quite well. However, this week a few situations occurred that have awakened some people to the reality that this may not be the best way to go through life. They did not take an active approach and now they are paying a financial and emotional cost.
While listening to a nationally syndicated radio show Monday, a caller phoned from the East Coast to complain about the "Lender Select" program allowed by HUD (Department of Housing and Urban Development.) This program enables lenders to use their own appraisers to verify value for FHA loans. In the past, FHA lenders were randomly assigned appraisers. The caller said that the opportunity for lenders to select and use their own appraisers permitted them to lend funds on homes that were not up to the standards set by HUD. She felt that, since the loan was insured by the FHA (Federal Housing Administration), the lender had no concern as to loss. She also stated that individuals buying a home with FHA financing were being taken advantage of since they were low to moderate income buyers. The caller clearly stated that the buyers were victims since they purchased these homes with inspections and appraisals and yet when the new homeowners moved into the homes, those homes had glaring deficiencies. She moved into her own home and currently is without natural gas since the meter was removed and has not been replaced. The caller was actively seeking FHA financed homeowners to protest what she considers victimization by lenders.
I called the 800 number she supplied and talk with an individual who gave me additional information regarding appraisers and inspectors for FHA financing. She also updated me about the East Coast Regional Offices of HUD and what she felt was HUD's lack of accountability in these situations. Problems may and do exist in the system. However, what problems exist does not preclude the buyer from taking an active part in the home purchase transaction. Don't leave it up to the agent, a lender, an inspector, an appraiser and/or the escrow company to protect your interests in what is probably the most expensive financial transaction of your life. Take an active approach. Ask questions and get answers that satisfy you. Check the home, be with the inspector during the inspection. Get comparable sales from your agent so that you know that the price you are paying reflects current market value. If you want to pay more, you know why.
Know the dollars required to close on your transaction, don't wait until the last minute and find that you are short of funds. If your property needs work and/or placement fixtures, check that what is negotiated is finished. You are in control before the transaction closes. Once you do close, things change as you will see in the next situation. I received a call from a real estate agent saying that her clients were packed and ready to move. Their home was sold and ready to close Thursday (the next day.) The demand from their current lender included a prepayment penalty on the loan for $3,664. This loan was taken out in August 1995 and had a three-year prepayment penalty. A prepayment penalty normally is six months interest, if you pay the loan off sooner than agreed. If the home is sold and the loan paid off in April 1998, the sellers owe the lender $3,664.
Most lenders will not waive the prepayment penalty. The borrowers at the time of the purchase of their home knew that there was a prepayment penalty. They did not read the note after purchase nor did they read the note before their sale. For many this is not a problem, we know we have a fixed rate, a definite term and no penalties. For others who have special situations, it is important that the note be in a convenient location. Reference the note before the commencement of any financial transaction regarding the home. This note had a three-year prepayment penalty expiring in August 1998. If they had known the consequences beforehand, they may have had options. Unfortunately, waiting until the last minute puts them in a bind that possibly leaves $3,664 with the lender.
Another message was left by an individual who said she felt as if she was the victim of a fraud. A man called her to say that he purchased her home and has told her to vacate immediately. She said that an attorney she had seen told her that this could not happen. This has been an ongoing problem for the owner since she has had difficulty making her mortgage payments. The owner did unfortunately lose her home of 30 years. It was sold by trustee's sale. However, this was a problem that did not manifest itself over the last ninety days. I personally made a call to this individual's lender and discussed the situation. The lender's representative said that they tried to work with the borrower and sent a workout package to her. She did not complete the package nor communicate with the lender. The representative said "we do not want to take back the home," but with no communication there was not much that could be done now. Next step was for the owner was to file for bankruptcy. She found an attorney for this purpose. Again, limited follow up without any positive action by the borrower caused the bankruptcy petition not to be filed. The unfortunate result is that the home was sold and now she has been served with an unlawful detainer.
These are just a few of the many situations that affect individuals involving real estate transactions. Many elements of a real estate transaction can be processed to a positive conclusion. As a buyer, seller or borrower, be aware of the consequences of an action, your financial and emotional well being will be the better for it.
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