Should I get a survey?

A survey is a vital part of due diligence conducted during the home buying process.  A title search will identify what easements and liens may affect a property.  A title search, however, does not identify what is actually on the ground.  Is the fence actually on the boarder?  Is the shed within the property bounds?  Only a survey prepared by a licensed land surveyor can identify the location of the boundaries, structures and easements affecting the property.  In the event there is a problem such as an encroachment, you can require the seller to correct it or walk away from the transaction prior to closing. 

             

Here is an example of why a survey is so important:  You buy a property.  The title search does not identify anything out of the ordinary.  You do not get a survey.  After closing, your new neighbor tells you that your driveway encroaches onto his property.  You call the title insurance company to defend the claim, but the title insurance company has excluded it from coverage because it would have shown up on a survey.  You are then left to defend the location of your driveway (at your expense) and/or relocating the driveway to cure the encroachment (also at your expense).

              

Had you obtained a survey prior to closing, you could have made the seller correct the issue or you could have terminated the transaction saving you both money and the headache that comes with title issues. 

              

Buying or selling a home?  Call Elizabeth K. Cassidy today at 845-987-7223 to discuss your needs. 

Why do I need title insurance?

Why do I need Title Insurance?

In order to obtain title insurance, a title agent will search the county land records and other sources to determine what liens, easements and restrictions are recorded against a property.  In order to close and receive an owner’s title policy, liens such as outstanding judgments, mortgages and tax liens will be satisfied at closing.  The title company will ensure that these payoffs are transmitted to the proper party.  Once a mortgage or lien is paid off, a document called a Satisfaction will be recorded in the County Clerk’s office.  After closing, the buyer will receive a title policy that insures that all these liens are paid and that there are no other easements or restrictions recorded against the property other than those identified in the policy.  The title insurance premium is a one-time premium paid at closing. 

                There are two types of title policies: a loan policy and an owner’s policy.  A loan policy only protects the bank’s interest.  An owner’s policy insures the homeowner for the full purchase price.  If a title dispute arises and you do not purchase an owner’s policy, your bank will have coverage and you will be required to defend your title on your own.  The bank’s policy also only covers the mortgage amount, not the purchase price of the home. 

Having an owner’s title insurance policy is important for a number of reasons:

1.            An owner’s policy serves as proof that prior mortgages were in fact paid off.  It is not uncommon for a mortgage satisfaction to go missing and not get recorded against the land records.  For example, Owner A bought property for $100,000.  Owner A took out a mortgage of $ 80,000.  When Owner A sold to Owner B, the balance of the mortgage was paid off at closing.  The satisfaction got lost and never got recorded.  When Owner B sells to Owner C, Owner A’s mortgage is still open of record despite being paid off.  If Owner B has an owner’s policy, his policy insures that the mortgage was paid and provides indemnification to Owner C and his title company.  All Owner B needs to do is provide a copy of the policy (or ask his insurance agent to provide a copy).  If Owner B does not have such a policy, that indemnification is not available and Owner B may have to spend significant time and legal fees tracking down a satisfaction or worse, having to obtain a court order that the judgment is paid.  This takes time and delays closing.

2.            Similarly, a buyer’s title company will accept a previous owner’s policy for other title objections such as estate issues. 

3.            The title search that is a prerequisite to obtaining a title policy identifies various liens, judgments and other title objections that are against the property.  If you forgo a title policy simply because you are buying from a family member, you run the risk that their judgment becomes your judgment.  For example, Dad wants to sell property to Son for cash.  Son decides not to get a title insurance policy.  Son was not aware that Dad had neglected to pay income tax and the IRS had filed an income tax lien against the property.  The lien was not paid at closing.  When Son goes to sell, he will be required to pay off the IRS lien in order to close.  If, on the other hand, Son had purchased title insurance, the title company would have identified the lien during its title search, required Dad to pay the lien as a condition of closing and would have insured the lien had been paid.  If the title fails to identify the lien, it would indemnify Son should the IRS attempt to enforce the lien or when the Son sold the property. 

4.            If your title is challenged in Court due to a circumstance prior to your ownership and you have an owner’s policy, the title company will pay to defend the lawsuit and will either pay to clear the title issue or write you a check. 

While loss of title is an extremely rare occurrence, your home is one of the biggest investments you can make.  Protect that investment by buying an owner’s policy when you purchase the property. 

If you are in the process of buying or selling real estate, please contact the Law Office of Elizabeth K. Cassidy at 845-987-7223 to discuss your needs today. 

This is not intended to be legal advice or establish an attorney client relationship. 

Getting Ready to Sell Your House

When you list your home, the first things that come to mind are touching up the paint, cleaning up the landscaping and staging the home.  However, here are a few steps you can take before listing your home to ensure a smooth transaction once you find your buyer.

1.  Locate important documents such as your survey and title policy.  Having these documents ready to go facilitates your title review and ultimately results in a faster transaction.

2.  Freeze any home lines of credit.  The title company will want assurances that no more funds can be drawn against outstanding lines of credit.  Sellers should call their lender and ask them to freeze the line so that no more funds can be drawn and provide proof that they did so to their attorney.  Absent proof that home lines of credit were frozen, title companies often require 120% of the credit line to be held in escrow until the line of credit is resolved.  For example, if you have a $50,000 line of credit, the title company would require $60,000 to be held in escrow until proof that the line of credit is properly paid off.  This unnecessarily ties up your money for a period of time.

3.  Resolve any open building permits.  Did you take out a building permit during your ownership?  If you did, make sure that you or your contractor obtained the necessary certificate of occupancy or certificate of compliance to close out the permit.  Any open building permits will be raised as violations during the title review process delaying your closing.

4.  Prepare a list of improvements that you have made to the home together with the amount you spent.  This list will assist an appraiser as well as assist you in preparing capital gains paperwork.

5.  Make realistic plans to move.  In New York, we do not have rigid closing dates.  Typically contracts provide for an "on or about" closing date which means the closing could occur up to 30 days of that date.  Unless you have sufficient assets to buy your new home prior to closing on your old home, you should plan on having a few days to a few weeks where you are "homeless."  Although this period of time can be stressful, proper planning can ease that stress. 

With a little bit of preparation, you can drastically diminish the stress and hassle of moving.

Buying a house when unmarried by Elizabeth K. Cassidy

It is becoming more and more common for people who are not married to buy real estate together.  While such an arrangement offers benefits such as shared housing costs, there are several potential pitfalls one should consider prior to purchasing real property with one other than a spouse.

      

      1.       How are bills going to be paid? 

Assuming there is a mortgage, one must keep in mind that buying property jointly has the potential to put you on the hook for significant expenses.  If both parties sign the note and mortgage, both parties are jointly and severally liable for the home loan.  This means that if one party cannot make his or her contribution to the mortgage payment, the remaining party is liable for the payment.  Even if you do not sign the note, most lenders require that all parties to a deed sign the mortgage.  So even though you are not responsible for the debt, if your housemate fails to pay the mortgage, the bank can foreclose on the house and kick you out.  Do you trust the person you are buying with to not leave you high and dry?

In addition to the mortgage, the parties should consider how the household bills are to be paid.  Will each person contribute a set percentage to a joint household account?  Will someone be primarily responsible for the bills and be reimbursed by other parties?  Will the bills be divided up amongst the parties?  I.e. John pays the electric bill while Jane pays the cable bill.  What happens if one party loses his or her job?  In addition, you should consult with your tax adviser as to how to handle deductible household expenses.  Who gets to deduct what?  You both cannot deduct the same amounts.  Although unromantic, whatever arrangement you settle on should be in writing.

     2.       How is title held?

In New York, there are a couple of different ways to hold title to real property.  Spouses typically own property as husband and wife with rights of survivorship.  When one party dies, the surviving party automatically gets full ownership of the property.  There is no need for Court intervention, probate or even a will.  Unmarried individuals can own property either as “tenants in common” or as “joint tenants.”  As tenants in common each owner owns a percentage of the real property.  For example, if John and Jane own 123 Main Street as tenants in common, John would own 50% and Jane would own 50%.  Each could sell or bequeath their share as they saw fit.  Jane would not automatically receive John’s share unless he bequeathed it to her in a will or she was otherwise entitled to it under New York intestacy laws.  In contrast, if John and Jane own as joint tenants, they each have full ownership of the property.  Neither party could share or bequeath their interest absent consent of the other party or Court intervention in the form of a partition action.  Jane would automatically inherit John’s share as a joint tenant. 

     3.       What happens when there are broken hearts?

Parties should have a written agreement discussing how the real property and shared personal property will be divided in the event that the couple breaks up.  Are you going to liquidate the real property and personal property and split the proceeds according to set percentages?  Is one party going to buy the other out?  Can that party afford to carry the mortgage by themselves?  Again, this is an unromantic prospect but having an agreement in place from day one will prevent significant agony should there be a break up. If you truly love each other, you will have this difficult conversation in advance.

     4.       What happens when you sell the house?

Again, prior to buying a house, parties should have an agreement concerning how proceeds (or worse debt) is to be split when the house is sold.  Does one party contribute more than the other?  Did one party put up the down payment? 

Parties interested in buying a house together might also consider a landlord tenant relationship.  This is particularly true if only one party is needed to finance the transaction.  For example, Jane has sufficient income to support a mortgage for the house.  If she buys the house in her name alone, she can enter into a “lease” arrangement with John for an amount to assist with house hold expenses.  If they break up, it is much easier for both parties to walk away.  There is no question as to who is entitled to the equity in the house.  If Jane wishes for John to inherit the home, she can easily make the necessary arrangements in her estate plan. 

Consultation with a lawyer to thoughtfully plan for these potential pitfalls can result in a smooth and positive joint ownership arrangement.  

Is Building the Right Decision? By Jessica Mahoney

As the real estate market improves, many more people are weighing the pros and cons of building versus purchasing an already existing home. While the benefits of new construction, such as choosing finishes or picking the perfect piece of land are readily apparent, there are many important considerations when deciding to build. It is vital to your wallet and your sanity to sit down and contemplate these items prior to deciding on building, as they can often turn into cons down the road. 

1.  Financing.

Likely the biggest consideration in deciding whether to buy an existing house or build a new home is the cost difference and the funding associated with each transaction. When purchasing an existing home, you have a set purchase price plus an estimation of closing costs. A variety of loan options are available, including conventional mortgages, FHA loans and VA loans. With new construction, you are often left with fewer loan options.

As a result of the past recession, many builders will only accept construction financing. This takes the financing burden off of the builder and places it on the purchasers.

A construction loan allows the purchasers to buy the land prior to construction and the remaining money from the loan is disbursed over time to pay for the construction. Typically, construction loans have variable interest rates, which mean they will fluctuate over the life of the loan. For example, on a 30-year loan, the interest rate may start at 2% for the first five years, and then increase over the remainder of the 30 years. There is usually a cap on the maximum interest rate for the life of the loan, which is something to consider when looking at a construction loan. Many construction loans are “interest” only loans for the construction period, however, there is a maximum length of construction (i.e. one year).

Most people convert or refinance the loan, after the construction is complete to a conventional loan with a fixed interest rate. If you plan to refinance to a conventional loan, you will have two sets of closing costs, the first on the construction loan and the second the refinance.

This means you are responsible for homeowner’s or hazard insurance, taxes, as well as mortgage payments. Make sure to include these carrying costs and closing costs when budgeting for your new home, especially as we discuss the next section “Timeframe”.

Some builders still allow their clients to obtain an “end loan”, which is another term for a conventional mortgage. The difference is that with a conventional mortgage, you do not actually own the property until the house is fully completed and you have a closing with the bank and the builder similar to as if you purchased an already existing home.

If you have a conventional loan, you may have to pay some additional bank fees to keep your loan open throughout the duration of construction. It is important to ask your lender prior to moving forward if they can estimate those fees. With a construction loan, you need to consider your monthly expense budget for the construction loan, in addition to your living expenses for the construction timeframe. This can be very costly unless you have family or friends in the area that will let you stay with them. Also, make sure that your anticipated completion date is well within the lender’s cap on interest only payments, otherwise your monthly budget could skyrocket if the build runs late

     2.    Timeframe.

Let’s start off by saying that whether you choose to buy a pre-existing home or build from the ground up, the timeframe is almost always going to be longer than you initially think. A normal real estate transaction in New York on an existing home generally takes six to ten weeks from signed contracts to closing. New construction is a whole different ballgame, as timeframes vary from builder to builder.

Factors that may alter construction timeframes include the builder’s existing workload and the condition of the site. For example, if a builder gives you a six to eight month timeframe, but, he has ten other houses that he is working on at the same time, you might consider anticipating a ten to twelve month completion timeframe.

Also, when visiting the site, look around at the surroundings. Are the roads built yet? Does the builder have to clear a lot of the land before building? These are all things that you should inquire about as they may tack on additional time. This is where it is important to work with a knowledgeable local realtor who can advise as to the current status of the subdivision, including road dedication and municipal subdivision approvals.

Most importantly, understand that the construction will likely have delays and there is nothing you can do about it. Knowing and preparing for this upfront will make it less stressful when it actually happens.

     3.    Contingency Fund, Inclusions and Upgrades.

The biggest difference between purchasing an existing home versus building a new home is choosing the various finishes throughout the home. As I wrote in the beginning of the article, when you purchase a home you will agree on a set price for the property and you will have a reasonable estimate of closing costs. When building home, pretty much the only certain thing you have is uncertainty.

Typically, a new construction contract price includes a lot of the basics, which are often outlined on the builder’s “spec sheet”. The spec sheet is usually a couple of pages long and will list out basic items like “kitchen cabinets” or “carpet on second floor”. It is absolutely impossible to determine what you want to upgrade and develop and upgrade budget from a spec sheet. The best thing to do is to set up a meeting with your builder and go through each item to determine whether you want to upgrade or stick with the included item.

After you have a discussion with your builder, you should be able to set a reasonable upgrade budget. My advice is to take the budget and double it. Then take 50% of your original budget and put that in reserve as your contingency fund. In the event you budgeted properly, you can always take the additional funds and put them towards the principal of your mortgage, or use it to buy furniture and other furnishings. Better to plan for too much, then not enough.

Example of a budget:

            Increase Porch Size: $2,500-$3,000

            Add Quartz Countertops: $5,000-$6,000

            Add Hardwood Flooring: $4,500

            Change Plumbing Fixtures: $2,000

            Tile Shower: $1,000-$1,500

            Total: $17,000 x 2 = $34,000 (Budget)

            $17,000 / 2 = $8,500 (Contingency Fund)

Once you have calculated a budget and a contingency fund, you need to determine where these funds will come from. Many people add a portion of their upgrade budget to their mortgage amount, and leave the rest of their budget to come from cash savings.

If you know of certain upgrades (especially the larger ones), you may want to include those in the purchase price. For example, you know you want to upgrade the siding, add a deck, and upgrade the kitchen for a total of $30,000. If you add this amount to the purchase price, you will increase your loan amount, and therefore, will have more money to use from the bank for these upgrades.

However, you need to consider that any increases to the purchase price will also increase the amount you need the property to appraise for. So, if the purchase price is $300,000, and you add $30,000 in upgrades, you will now need an appraised value of $330,000. You should consult with your loan officer prior to adding in these upgrades, and also consider whether you have the funds available for these upgrades in the event the house does not appraise for the value including those upgrades.

For example, the building plan shows a small front porch which you want to expand. Clearly, there will be an additional cost for the expanded front porch. Only after a conversation with your builder, will you have a realistic idea of the cost of this anticipated upgrade. Included on the spec sheet might be “front door”. However, you do not like any of the options available to you, and this results in an unanticipated upgrade.

Also, there are many items left off the spec sheet that you may not even realize until you actually get to that point. Lighting, appliances and driveways are a few general examples of items often not included on a spec sheet which can easily result in additional expenses that you are not prepared for. This is why you should have a contingency fund.

     4.    Communication.

Simple rule: you would not marry someone with whom you could not communicate, so do not contract with a builder who does not answer your phone calls. You are paying for a service as well as a product. Communication throughout the duration of construction is a key factor in ensuring your finished product is exactly what you are expecting. If you have a builder who wants to significantly limit your ability to visit the construction site, this is a red flag. While some limitations to visits are understandable for liability reasons, the builder should want you to visit regularly to oversee the process and point out any issues or discrepancies while they still have the ability to fix them.

Prior to committing to a builder, you should discuss the importance of communication and the best means for contact. Also, set up a meeting schedule with the builder as major items get completed. By doing this, you are avoiding walking into the home as it nears completion and realizing there are major issues such as flooring, layout, etc., that are costly to fix.

5.    Punch List Items.

When purchasing an existing home, you are already prepared for the fact that the house is not 100% what you had envisioned. Most people who decide to build a house think that they are going to end up with a perfect rendering of their dream home. This is a common misconception that often leads to extreme frustration and is the direct result of many shows on HGTV. It is important to understand that you will not receive a computerized 3D rendering of your home beautifully decorated. Instead, you will get to look at a variety of options, mostly on paper, and hope that once put together, they will look amazing. Obviously, this not always going to result in the same picture you have in your head.

My advice is to do a lot of research on websites like Pinterest and Houzz. Give yourself an idea of what a kitchen with white cabinets, white counters, and a gray backsplash will look like prior to settling on those selections. Even though you will not have an exact picture of the finished product, at least you will have a better idea of what those combinations look like. Also, go with timeless selections as opposed to what is trending. Remember, you are building a house which means you will likely be in this house for quite some time. When you pick timeless items, you eliminate the need to “update” the property in just a few years.

Most importantly, remember that your new home will not be perfect. Prior to the house being completed, walk through the house a few times with a camera and a notepad. Jot down and take photos of any issues you notice, like chipped drywall, scratched floors, missing molding, crooked fixtures, etc. Send a preliminary punch list a couple weeks prior to the house being completed to avoid having multiple contractors in your house while you are trying to move in. Be prepared to find more things as you move in. Again, note each issue, snap a picture and keep the communication open with your builder.

After all is said and done, choosing to build a house is like choosing to go on an amazing journey full of ups and downs. At the end of the day, you will have your “almost” perfect dream home to cherish with your family for many years to come. The most important advice I can give is to make sure you retain the services of a competent local attorney who can help guide you through the initial stages of contract review, loan options and closing. This will make the complicated process of building a home just a little bit easier and less stressful. 

Interested in buying new construction, please contact The Law Office of Elizabeth K. Cassidy at 845-987-7223.

Dealing with a low real estate appraisal

When buying a home, mortgage lenders typically require a property to appraise at or above the purchase price in order to fund a home loan.  This is to ensure that the collateral, the property, is worth more than the loan amount in the event they need to foreclose on the property. 

With the recent changes to the market and the lending environment, low appraisals are unfortunately becoming more and more commonplace.  This article will focus on how to potentially increase an appraisal and what to do if you receive a low appraisal.

If you are selling, here are some things you can do to potentially increase the appraised value of your home. 

1.      Provide a detailed list of every improvement that you made to the property while you owned it.  Did you replace any appliances?  Did you update light fixtures or hardware?  Did you add or replace a deck?  Include the costs of any improvements.  When were the improvements made?  Do you have appropriate building permits and certificates of occupancy?  I would prepare this list in advance and in writing so that you are sure not to forget anything while the appraiser is at your home.   

2.      Make sure both the interior and exterior of the home is clean and clutter free.  The appraisal is based, in part, on the condition of the home compared with other properties in the neighborhood.  A clean and clutter free home is more likely to provide a favorable impression resulting in a higher appraisal amount.  Likewise, if you can, repair broken items or finish any incomplete projects before having the house appraised.   

3.      Make sure the appraiser has access to the entire property.  If you have outbuildings, make sure that they can get into the outbuildings.   

4.      Gather a list of comparable home sales in your area.  What are similar homes selling for?  If you are utilizing the services of a real estate agent, your agent can assist you with these efforts.   

5.      Have documents such a surveys and house plans available for the appraiser to review.  You want to be sure the appraiser has the appropriate lot size and square footage. 

So your appraisal comes in too low, now what? 

You and your real estate agent should review the appraisal to see if there are any errors.  Errors might include the wrong square footage, the wrong lot size, and omitting comparable homes.  Is the information for the comparable homes accurate?  Is the appraiser familiar with the area?  If errors are found, the appraiser may revise his or her report or your lender may be willing to allow a second appraisal.  Please note that it is rare that an appraisal is successfully challenged. 

The parties have several options in dealing with a low appraisal.  Frequently, contracts of sale provide that the deal may be canceled if the appraisal is too low.  Often sellers reduce the purchase price to the appraised value so that the lender will fund the loan and save the deal.  Another option is that the purchaser could make up the difference between the purchase price and the appraised value in cash.  This option is more likely when the appraisal is only a few thousand dollars lower than the purchase price.  The seller and buyer could also agree to meet in the middle.  The seller reduces the price and the buyer brings more cash to the table.  Lastly, the parties may cancel the sale if the contract allows. 

If you need assistance when buying or selling a home, be sure to obtain competent legal representation to guide you through the negotiation process.  This article is not intended to be legal advice and does not establish an attorney client relationship.  If you wish to speak with Ms. Cassidy on a specific legal matter, please contact her at 845-981-7223.

Landlord Self Help

It can be frustrating for a landlord when a tenant fails to pay rent on time.  A landlord may not be able to pay the mortgage, pay utilities or the property taxes.  When this occurs many landlords are tempted to turn off the utilities or lock the tenant out in an effort to force the tenant to move out.  These efforts are commonly refered to as "self help" and can lead to significant civil and criminal consequences.  The only person who can forcibly remove a tenant from a property is the Sherrif with a court ordered warrant of eviction.

New York Law provides for a summary proceeding that allows landlords to quickly evict tenants who fail to pay rent.  These proceedings take place in your local justice court.  After a successful eviction proceeding, the Judge will sign a warrant of eviction and a judgment for any rent that is owed.  Once you have a warrant of eviction, you can present it to the local Sherrif's office who will schedule an eviction. 

Although this process takes some time and some money to complete, it ensures that you have lawfully evicted a tenant.  In contrast, New York Law provides for criminal and civil penalities if a landlord unlawfully removes a tenant.  For example, the Real Property Actions and Proceedings Law provides that a tenant may be awarded treble (triple) damages.  Damages can quickly escalate to the point that they far exceed the rent owed and you end up owing the tenant money rather than the otherway around. 

If you need to evict a tenant for non-payment of rent, contact competent legal counsel to guide you through the process. 

This blog is not intended as legal advice and does not establish an attorney client relationship.  If you wish to speak with Elizabeth Cassidy on a specific legal matter, please contact her at 845-981-7223.