Courthouse Closings 2008-2009

Now that it's November it's time to start focusing hard on the upcoming Holiday Season (although Retailers have been trying to get us to think about it since August). In addition to working on getting your holiday cards out, planning your holiday party schedule, and shopping, real estate agents should take note of the schedule of courthouse closings. Failing to do so could cost your Sellers hundreds and possibly thousands of dollars!

Why?

Remember, the Regional Sales Contract requires the Purchaser to deliver the required funds on the Settlement Date and the Seller to deliver possession of the property (including keys) at settlement. Virginia's Wet Settlement Act, however, requires the Settlement Agent to record the Deed and any Deeds of Trust prior to disbursing proceeds, including the Seller's proceeds and funds to payoff the Seller's mortgage.

When the Courthouse is closed, disbursements are necessarily delayed. For instance, if you were to settle on Tuesday afternoon on November 25 in Prince William County, your seller would have to give over the keys but they wouldn't receive their funds and they would have to keep paying their mortgage interest until Tuesday, December 2! The Prince William County Courthouse will close at noon on Wednesday November 26, and probably stop taking recordings about an hour before that, which is 11 a.m. -- if your settlement documents aren't first in line to be recorded they may not get on record until Monday the 1st, and your payoff check wouldn't arrive at the lender until Tuesday December 2, 2008.

In Fairfax County a closing December 23 might no be recorded until December 29.

What can be done to avoid this?

• Check the Settlement Date!
• Be aware that the Settlement Company has two business days after the scheduled closing to record.
• Talk to the Settlement Agent to see if they can do better.
• Be very wary of a Purchaser's promise to settle early in the morning to allow for same day recordation. As mentioned above, the Purchaser won't be in default if the funds arrive any time on the Settlement Date.
• Remind the Purchaser of their duty to provide cashier's checks or bank wired funds. Encourage them to take care of this the day before settlement, rather than the day of. Any delay will slow down the recordation and disbrusement process.

Below is the current closing schedule for Northern Virginia Jurisdictions. Keep in mind the schedules are subject to change. Where hyperlinked, you can click to go to the official site of the Clerk's office.

Alexandria (City): November 11, (Veterans Day) 27, 28; December 24, 25; January 1, 2

Arlington County: November 11, 27, 28; December 24, 25, 31; January 1, and 19

Fairfax County: November 11, 27, 28; December 24, 25, 26, 31; January 1, 16 (Lee Jackson Day), and 19

Loudoun County: November 27, 28; December 24 (noon), 25; January 1, 19

Prince William County: November 26 (noon) 27, 28; December 24, 25, 26; January 1, 2, 19

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Seller Financing Addendum

Here is a sample copy of the NVAR Standard Form - Seller Financing Addendum

A clean form fillable copy can be downloaded from NVAR.com by clikcin on the Members Only tab and going to the list of downloadable forms. Look for Form Number K1335.

I've received three calls in the last two days from agents with clients considering some form of Seller Financing. The Standard form is a check the box / fill in the blank document that will guide you through most of the important decisions a seller has to make when they are considering offering to take back a note and deed of trust on the property.

What follows comes from the written materials I prepared for a Continuing Legal Education Seminar in 2007:

B. Seller Financing:

Seller financing is likely to become an increasingly popular tool for sophisticated sellers who have built up substantial equity as their homes have appreciated over the last several years. By offering to use some of this equity to help buyers finance their purchase, sellers can set their properties apart from the growing inventory of listings.

The ability to offer Seller financing broadens the pool of potential buyers, which is more important than ever as the inventory of properties in Northern Virginia increases. If a seller cashes out completely when they sell their home, the buyer is limited to their available cash and traditional financing to meet the sales price. But if the seller is willing to provide some (or all) of the mortgage, it may open the property up buyers that may be able to get a traditional mortgage for most of the sales price, but don’t have the resources or don’t wish to liquidate those resources to make up the difference in cash. In such a case, if the seller is willing to hold a mortgage for the difference in the second lien position subordinate to the first mortgage lender, the sale may get completed, enabling the seller to receive the lion’s share of the price in cash at closing.

Seller financing can be as flexible as the imagination of the parties to the transaction. The repayment terms can be negotiated between the buyer and seller in order to make the transaction work. For example, if the buyer needs to sell another property, the mortgage payments might be interest-only for a period of time, or postponed for a certain period or even until maturity. Almost none of the requirements of traditional lenders are involved.

If the seller financing is in the first or only lien, another benefit is that less information may be required of the buyer.

Since the sellers already own the property, they know the property first hand and don’t have to require the usual appraisal process. They only need to be satisfied that the buyer will be able to successfully make the mortgage payments. In those cases the seller would be wise to require a more substantial down payment from the buyer to be assured that the buyer will not walk away from the property if they find themselves unable to make the required payments.

The primary disadvantage of seller financing, especially if the seller provides the whole mortgage, is that the seller only gets a minimum amount of cash at closing – the buyer’s down payment. The majority of the sellers’ equity remains tied up in the property, even though they are now receiving mortgage payments from the buyer. Many sellers need the equity in their home to purchase their replacement home. By financing the mortgage, the seller will have to deal with the headaches of servicing the mortgage, accounting for the receipt of payments, additional payments of principal, concerning themselves with the timely receipt of payments, etc. Although they have the Deed of Trust as security for the property, foreclosure and a trustee’s sale are usually not an attractive option in the event of the buyer’s default.

One final note of caution, in some situations the availability of seller financing may encourage a buyer to overpay for a property. A situation could arise in which a buyer has a certain amount of down payment and a traditional mortgage lender is willing to make a loan, but the combination is still well short of the asking price. The seller might be willing to make up the difference by holding a second mortgage. But unless a property is seriously under-appraised or in need of renovation and improvement, a seller second mortgage could put a buyer in a position where a future sale, after paying off both mortgages, could yield little or no return on the buyer’s investment, and might even cause the buyer to be “upside down.”

Documentation
Contract Provisions/Addenda
The documentation for seller-held financing is not much different in substance than the documentation discussed above for institutional financing. In addition to the note and deed of trust, though, there is typically an addendum to the purchase contract or language inserted in the purchase contract that sets out the basic terms of the parties understanding of the seller financing. At a minimum, the contract should contain agreement as to the amount of seller financing, the interest rate, maturity date, and repayment schedule. The parties should also agree on what lien position the seller financing is to be in, and that it will be the purchaser’s responsibility to disclose the existence of the seller financing to his primary lender. It is also helpful to agree at this point on what happens in the event of Purchaser’s default, whether there will be a different interest after default, and what remedies are available to the Seller Lender.


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Even Newer Disclosure Form - Use Immediately!

I, like many of you, was surprised to learn that the Virginia Real Estate Board (VREB) recently amended the Virginia Residential Disclosure Statement to comply with House Bill 837. HB 837, which received no attention from the Virginia Association of Realtors or the Virginia Bar during the session, requires a new 7th notice be given to all prospective purchasers advising them that the seller makes no representations with regard to whether the property is located in a “dam break inundation zone.”

The new form was adopted by the VREB on July 10, 2008, and was posted to the VREB website that evening which means Listing agents should get the new disclosure signed by their sellers and use it for all contracts ratified Friday, July 11, 2008, forward.

Buyers who received the old form before July 11 do not need to receive a new form.

Remember: As with the changes effective January 1 of this year, It doesn't matter when you took the listing. If you are giving a form to a prospective buyer on or after July 11, it must be the new disclosure form. If your seller or agent gave the old form on July 11 -15, you might want to give the current form to the buyers to avoid creating a potential loop-hole for a non-performing buyer to discover later in the process.

Here is a link to the form:
Residential_Disclosure.pdf

Here is a link to the write up on NVAR's website on which I based much of my post.

disclosure_notice.pdf

Here is a link to thew new disclosure law.

http://leg1.state.va.us/cgi-bin/legp504.exe?000+cod+55-519


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New MRIS Policy on Short Sales

The Fredericksburg Area Association of Realtors posted an interesting article about the new MRIS policy on Short Sale Listings and the tension between the policy and your ethical obligation as realtors to keep your clients personal financial information confidential.

Michele Freemyers, of my law firm and the Fredericksburg office of Ekko Title added that she wished the posting had began and ended with the following :

"MRIS requires you to disclose this information. The Code of Ethics requires that you NOT disclose this information as it is considered confidential. Bottom line: Get written from authorization from your Seller to disclose the Short Sale status BEFORE you list it in MRIS"

http://faarforum.com/2008/07/mris-short-sales-commissions-disclosures-and-you/

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Negotiating the Home Inspection Removal Minefield

I have had several calls recently from real estate agents having difficult home inspection removal negotiations that wound up putting the entire transaction at risk over "nice-to-have" items. It is very important that Real Estate agents understand the danger of trying to extract concessions from the Seller. The way the Home Inspection Contingency for northern Virginia is written, a negotiated item may not start out as a deal-breaker for you purchaser, but may wind up being a deal breaker after all when the Contract becomes void due to a failure of the Seller to continue negotiations.

The Home Inspection Contingency gives Purchasers of Real Estate three options following their Home Inspection:

1) They may elect to accept the property in its present physical condition, subject to the warranty provisions of the contract (Paragraph 7, Termite, Well & Septic etc.).

2) They may elect to deliver a copy of the entire report along with notice voiding the contract completely. No reason for voiding need be given.

3) Most Buyers, however, submit a copy of the inspection along with a list of items identified in the home inspector's report that they would like remedied (either by having the item repaired or replaced or by receiving a credit in lieu of repair).

The Seller then has some length of time (usually 3 days) to respond. If the Seller fails to respond or makes a counter offer, the Purchaser has 3 days to consider the Seller's response or lack of response and can still choose from any of the three original options (accept the property, void the contract, or submit a revised addendum).

If the Purchaser chooses to engage in further negotiation, they risk losing the house completely, or losing any concessions they may have won with their initial addendum.

Illustration:

Buyer conducts home inspection and requests roof replacement, carpet replacement credit, and stuck windows be made operational.

Seller counters that they will replace roof, credit $500 toward carpet replacement, and refuses to address stuck windows.

Buyer counters that they want $1000 for carpet replacement.

Seller does has not responded with fewer than 8 hours left in their response period.

Buyer now has only two choices -- if they drafted their contract using the most recent version of the Home Inspection and Radon Testing Addendum form.

1) They can do nothing and the contract becomes void at the end of the response period, and they lost the house over $500.00

2) They can remove the Home Inspection Contingency and take the property in its present physical condition, subject to paragraph 7, termite, etc. They have lost the concession for a roof replacement and $500 worth of carpet replacement in an effort to squeeze an extra $500.00 out of the Seller.

The scenario is worse if the Buyer used an old version of the Home Inspection addendum . . . arguably they can't save the transaction at all, and if the Seller is upset (or has received a back-up offer) they can wait out the clock and the contract will become void. I say arguably because some attorneys take the position that a contingency that exists solely for the benefit of the buyer can be removed by the buyer at any time before the contract becomes void . . . but who wants to litigate that issue?

What would the buyer like to be able and do? Go back in time and accept the Seller's last counter offer. How many of you keep a clean copy of every Seller counter offer just in case? I have no doubt that some Purchasers have successfully convinced their Seller to continue to closing after resubmitting a previously rejected counter-offer. The Seller is not obligated, however, by that delayed acceptance if it is received after the Purchaser's original deadline to respond.

Please feel free to comment or send me an e-mail if any of this confuses you.

Bottom line -- don't haggle over items that aren't deal-breakers for your buyer, because your deal just might break if you do.


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Who Should Fill Out the Short Sale Addendum?

If you know you are writing an offer on a short sale I highly encourage you to include the NVAR Short Sale addendum, rather than waiting for the Seller to counter with it. You want to control the deadline in paragraph 5 on page one of the addendum, as well as the timeframes on page two. You, the buyer, want to tell the Seller how much time you will give them to get the short sale approved, rather than having them tell you how much time they would like.

Also, you want to insist that the Seller fully ratify your offer, contingent on short sale approval, rather than holding on to your offer, submitting it for approval without ratifying it, and keeping the house active in the computer waiting for someone else to possibly make a better offer. The addendum allows you to do that, but put off your home inspection, appraisal, and other buyer contingencies until after you know the short sale lender has approved the sale.

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Class on new NVAR Short Sale Addendum

We are hosting two classes this week and next on the new NVAR Short Sales Addendum and how to handle short sale transactions generally.

Please RSVP to marcus@ekkotitle.com if you would like to come.

Seating is limited as the capacity at the Dolley Madison Library is only 60 people, so please RSVP and let me know if you plan to attend. Right now we still have a few spaces left and will maintain a stand-by list should that become necessary.

So, mark your calendar, April 3, from 1-4 in McLean and April 10, from1-4 in Reston.

Marcus

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Governor Signs Congestion Relief Fee Refund Bill

http://www.thenovaauthority.org/PDFs/Press%20Releases/03-25-08%20NVTA%20Return%20Release.pdf

According to the attached press release from the Northern Virginia Transportation Authority Website, the Circuit Courts that collected the $4.00 per thousand grantors tax from sellers that was recently ruled unconstitutional will have 60 days to come up with a plan to issue refunds.

In many builder and Bank Owned Property contracts the buyer pays the Grantors Tax. Hopefully the Courts will allow the use of a HUD-1 to established who actually paid the tax, and not automatically refund the money to the Seller.

Stay tuned.


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NVAR Short Sale Addendum Is Out Today - two other forms also released

The NVAR Board of directors approved three new forms at their last meeting and posted them online in the Members Only Section of the NVAR Website

The most anticipated of the three is the new SHORT SALE CONTINGENCY ADDENDUM
TO REGIONAL SALES CONTRACT.

Form K1351 attempts to define what is meant by the term Short Sale as used in the addendum, has the parties acknowledge that approval is required, and what that approval must contain (i.e. that the lender will accept the seller's net proceeds as full payment and will release liens associated with the loan). The Seller also agrees to cooperated with all of the interested parties in obtaining the lender approval and consent.

The form also give the Seller a deadline to obtain the necessary approvals, after which: "Purchaser may deliver notice to Seller of Purchaser’s intent to void the Contract. Seller shall have three (3) business days from receipt such Notice to deliver written evidence of creditor(s)’ approval to the Purchaser, or this Contract will be void."

The Seller also has the right to void the contract upon receipt of a written rejection of the proposed short sale.

Because the short sale approval often takes a long time, and Purchaser's may not wish to spend money on inspections and appraisals without some certainty that the transaction will eventually close, the form allows the parties to choose whether these contingency deadlines should run from the date of short sale approval or from the date of ratification (as is normally the case).

Please look at the form and LEAVE COMMENTS HERE by clicking on teh comment link below the post. You may also wish to subscribe to have the blog e-mailed to you, so you won't miss my posts on the new Appraisal Contigency Removal Form or the new Short Sale Addendum to the Exclusive Right to Sell Listing Agreement.

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K1351_EDUCATION2.pdf

Best Source of Information on Grantor's Tax Refunds

There have been a lot of rumors circulating about what will be necessary to get your money back if you or one of your sellers paid the much higher Grantor's Tax during the months of January a February. Ultimately my guess is that a HUD-1 settlement statement may be the best source of evidence of who paid the Grantor's tax and who is entitled to the refunds. Some have suggested you will need a recording receipt from the Clerk's office that collected the tax. While it wouldn't hurt to have that, I think those spreading that news are confusing the Grantor's Tax with the auto repair tax and some DMV taxes where the consumer would actually have been handed a receipt.

In the meantime, the Northern Virginia Transportation Authority will continue to post updates and press releases on their website regularly. Stay tuned to the blog or the NVTA site for the latest information.
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As Is As Woes

The new Contingencies and Clauses addendum to the Regional Sales Contract made significant changes to the As-Is clause. Specifically, in addition to the old language, there are a list of paragraphs and clauses from the body of the Regional Sales Contract that may be explicitly deleted by checking a box in the As-Is clause. This allows purchasers to agree that a property will be purchased "As-Is . . . except for Termites" for instance. It also makes it possible for the Seller to be very explicit about what it is that he or she won't fix, to avoid confusion or disputes closer to closing. One source of frequent confusion/conflict when older versions of the As-Is clause were used was the question of who was responsible for curing notice of violations from HOA and Condo associations involving the physical condition of the Property.

For instance, a Seller believing they had sold their property as-is may still be required to replace carpet if they installed less than the Condo association's minimum amount of padding, or a townhouse owner might be required to power wash their siding after a pre-sale inspection by the association which resulted in a notice of violation. This is because paragraph 19, Title, requires sellers to comply with all such notices of violation. Because these notices of violation had to do with the physical condition of the property, sellers using the As-Is clause often felt they shouldn't have to make the repairs, even though the plain language of paragraph 19 seemed to say they would.

The check box meant to address this issue may be overly broad in its reach. It says that all clauses related to compliance with Homeowners and Condominium associations are deleted.

That would appear to not only delete the clauses having to do with notices of violations, but might also delete the requirement to pay past due assessments, to pay special assessment affecting the property on the settlement date, or even the need to adjust the dues to the settlement date.

I suggest that any purchaser who receives a request to check this box from the seller add the following language after the pre-printed sentence "except those having to do with the payment of regular and special assessments, delinquencies and penalties. The Seller will be responsible for paying all sums due the association or management company prior to the settlement date."

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New Forms Are Out

NVAR has released new forms for download, including the new Disclosure statement, a new Contigencies and Clauses Addendum, and the new Home Inspection and Radon Contigency addendum I blogged about when it was first approved by the standard forms committee. More details to follow. Click on the post title for a link to NVAR's blurb about the new forms.

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Up Pops the Real Price Tag - Washington Post 12/8 story

I have been approached by a number of real estate agents this week who wanted my advice on how to protect themselves and their sellers against having something like this happen to them. For those who didn't see the story and don't want to click the link, the Buyer's showed up at closing with a certified check $2000.00 below what they needed to close. They claimed it was the result of a bad estimate of closing costs. Ultimately the Selling agent ended up paying it by reducing her commission.

I and many of the agents I spoke with about this observed that in this market this "oops we don't have enough money" problem isn't necessarily the result of bad estimates, but a deliberate tactic on the part of hte Buyer to try and renegotiate the concessions (from the Seller or the Realtors) at the settlement table.

How can you keep that from happening. One thought that's occurred to me recently is to build as large a closing cost credit as the Lender will allow into your Sales Contract. There is very little risk to a Seller in adopting this approach as long as they understand that their likely net proceeds will be the Sales Price less the concession. In the event hte concession turns out to be larger than the lender allows, the Seller gets the windfall. In any case, the Buyer more than likely gets all of their closing costs (even the unexpected ones) paid for. Usually when we see a large closing cost credit on teh settlement statement we end up scrambling with the Buyers and their agetns to make sure they can use all of it. Usually the buyer and lender are able to find enough "prepaid" items to use the vast, vast majority of the closing cost credit . . .which is fine with the Seller as long as they haven't banked on getting any of the concession back.

On the other hand, it prevents the buyer from showing up at closing saying the closing costs were higher than they expected and therefore they don't hvae enough money to close . . . since the Seller is paying all of the costs.

What do you all think of this approach? Do you think it would help? Would Seller's go for it?

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Correction - New Disclosure Statement Required to be Used Effective 1/1/2008

I had previosuly given out a different effective date for this important change to the real estate contracting process in Virginia.

The new form adds very little new disclosure language, and looks far more like the current Disclamer Statement than it does the current Disclosure statement. The Code of Virginia will require Sellers of real property consisting of fewer than 4 residential housing units to make six disclosures about the property prior to accepting any offer to purchase the property. Failure to make the proper disclosures prior to going under contract will give the Purchaser the right to rescind the contract and receive refunds of any deposits. If the disclosure is provided after the contract is ratified, the Purchaser has 3 days to cancel the contract.

What this means is that if you have a contract that was signed before January 1, 2008 and you provided a disclaimer statement, you're done. If you are a realtor with an active listing that hasn't sold yet, and you've already had your client sign a disclaimer form, you have to go back and get them to sign the new disclaimer form after January 1, 2007.

The new law will also supercede our standard form Virginia Jurisdictional Addendum, since paragraph 5 refers back to the old disclaimer disclosure scheme effective prior to January 1, 2008.

A rewritten Paragraph 5 should be available shortly.
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More Courthouse Closings

In addition to the closing listed Below many localities have announced additional courthouse closing at the end of December. This is significant because it will delay the disbursing of Seller proceeds and may subject sellers to the new higher Grantor's Tax.

Arlington will close at 1:00 on December 19 – recordings should be at the courthouse prior to 11:00 am.

The following courthouses are closed on December 31:
Fairfax County
Loudoun County
Arlington County
Prince William County
Fauquier County
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