Retiree Real Estate Mistakes

Realtor.com quoted me in 5 Major Mistakes That Retirees Make With Real Estate. It opens,

You’ve worked hard year after grueling year and, finally, retirement is on the horizon. There’s nothing ahead for you but lazy days of relaxation and idle time to pursue those back-burner hobbies. Hey, you’ve earned it!

But if you haven’t planned ahead, those golden years could be full of stress—fraught with unknowns and major decisions to be made. And one of the biggest, most stressful aspects of retirement is, you guessed it, real estate.

Do you downsize? Buy a second property so you can make like snowbirds and fly south for the winter? Keep the home where all your family’s memories were made? While there’s no one-size-fits-all solution, there are some general pitfalls to avoid.

Here are five of the biggest real estate mistakes experts see retirees make.

1. Failing to ‘audit’ the situation

It might come as a surprise, but many retirees forget to assess their current real estate situation to make sure it meets their future needs, according to David Reiss, professor of law at Brooklyn Law School.

“Most people are on autopilot when it comes to their home: ‘It has worked for me up to now, so I assume that it will work for me going forward,’” Reiss says. “The mistake they make is that they do not realize that their future selves are very different from their current selves.

“As we age, our ability to do all sorts of physical things worsen—shoveling, climbing ladders—decreases,” he adds. “So it makes sense to assess your housing situation at regular intervals.”

Even if you plan on keeping your home, there are questions you should ask yourself: Should you make adjustments to your home so you can age in place? Does it make sense to refinance into a 15-year mortgage in order to pay off what you owe more quickly while paying a lower interest rate? Should you access some of the equity that’s built up in the house in order to supplement your retirement income?

“All of these options have pros and cons,” Reiss says. “It’s worth talking them through with someone whose financial judgment you trust.”

What Is a Promissory Note?

by Zoli Erdos

Realtor.com quoted me in What Is a Promissory Note? What You’re Really Promising, Revealed. It opens,

If you get a mortgage to buy a home, you will end up signing something called a promissory note. So what exactly is a promissory note?

In the most basic terms, it’s a legal document you sign containing a written “promise” to pay a lender, says Scott A. Marcus, a shareholder in Becker & Poliakoff’s Real Estate Practice Group, in Fort Lauderdale, FL.

Promissory notes are a standard part of all real estate financing contracts and include basic information such as:

Promissory notes are an important yet often misunderstood part of the loan process.

“The worst mistake someone signing a promissory note can make is to sign a note without reading and understanding all of its terms,” says Marcus.

So let’s clear up a few common misconceptions, shall we?

Promissory note vs. a mortgage: What’s the difference?

Many home buyers mistakenly think that the mortgage—another contract they sign—is their promise to pay back the loan.

Well, they’re wrong! The promissory note is your promise to do that, plain and simple. The mortgage, on the other hand, is a contract that kicks in more when things go wrong.

In a nutshell, a mortgage (also called a deed of trust) is a pledge you sign to put up your property as collateral in case you default on your loan, according to David Reiss, professor of law at Brooklyn Law School and editor of REFinBlog.com.

In other words, if you suddenly find yourself unable to repay your home loan, your lender will eventually confiscate your property and sell it as a foreclosure to help it recoup its losses from lending you all that money.

Home Mis-Inspector

photo by Mark Moz

REFinBlog has been nominated for the second year in a row for The Expert Institute’s Best Legal Blog Competition in the Education Category.  Please vote here if you like what you read.

Realtor.com quoted me in Yikes! What If Your Home Inspector Missed Something Huge? It opens,

Your offer has been accepted, and there’s just one more obstacle between you and your new home: the inspection. It can be a stressful event for both buyers and sellers as they wait for the report, hoping no major issues will surface that could sideline the deal.

But what if you make it through that day, let out a big sigh of relief, seal the deal, and then a few weeks or months later find an issue in your new home—a bat infestation, a leaky roof, a CDC-level mold problem—that the home inspector didn’t catch? Just how much peace of mind does a home inspection really buy you?

Find out how you can protect yourself.

Sadly, there’s no insurance home buyers can take out to protect themselves from a faulty inspection. As such, the most important step home buyers can take to prevent that scenario is to select a reputable inspection company.

Make sure you choose a firm that has been in the residential inspection business for a while and has a strong reputation (real estate agents and lenders often have recommendations).

But most important, your home inspector should have adequate insurance.

Keith Balsiger, president of Balsiger Insurance in Las Vegas, says buyers should ask for a current certificate of insurance that shows the inspection company has both general liability insurance and professional liability insurance (also known as errors and omissions insurance). This is what would potentially cover you as a buyer if there was a major “miss” on the part of the inspection.

If you want to be extra safe, you can call the insurance agency of the inspection company to confirm the coverage on the certificate is still valid.

You also want to closely examine the terms of the liability insurance. David Reiss, professor of law at Brooklyn Law School, says some contracts will state that the company is liable only for the cost of the inspection, which won’t be much solace if you find yourself on the hook for repairs that could cost hundreds of thousands of dollars.

“Ideally, you would not want there to be any limit on the inspector’s liability in case he or she was negligent in doing the inspection,” says Reiss. At the very least, make sure the limit exceeds the cost of the inspection alone.

Why buyers should attend the home inspection

As an added safeguard, buyers should be physically present during the inspection. If an inspector balks at this idea, that’s a red flag. Make sure to find out what is covered by the inspection, and if there’s anything you want the inspector to scrutinize in particular (say, you know the boiler is old or the basement has water stains, suggesting flooding issues), state that upfront.

“It’s a buyer’s job to make the most of the home inspection,” says Bryant Dunivan Jr., a real estate and consumer protection attorney in Brandon, FL. Here are some things to watch for during the inspection:

  • The inspector is working off a checklist of items that was in the contract.
  • Major systems (air conditioning, heating, water, etc.) are tested.
  • The inspector actually enters attic and crawl spaces.
  • A report complete with pictures is provided.

What to look out for in a home inspection

Robert Pellegrini Jr., president of PK Boston, a real estate law firm based in Boston, says a typical red flag disclaimer on the inspection report is a statement that there was a problem with “access” to roofs, eaves, and areas behind locked or blocked doors or crawl spaces.

“That serves to absolve the inspector of any liability,” Pellegrini says.

Urge the home seller to remove all barriers that might prevent an inspector from doing a thorough job. Some home buyers even take the process into their own hands and hire drones or robots to view inaccessible areas.

Uh-oh! You’ve closed, but there’s a problem

No matter how many precautions you take, the nightmare scenario does happen: You move in and then discover a problem. A big one. Can you bring it up with the seller? After all, sellers are required to disclose any known issues about the home.

Well, here’s the rub: Proving the seller knew about something after the fact is nearly impossible, and the legal cost involved in trying to prove it is often too steep to make an attempt.

Which brings us back to the home inspector. If you encounter a problem, bring it up with your inspector. As long as you used one with decent liability insurance that covers more than just the cost of the inspection, odds are decent you’ll be compensated for any damages. Again, you’ll have to prove it. For example, if the inspector said the roof was in good condition, but there was a leak months later during a big storm, you would have to prove that nothing happened in the intervening time that damaged the roof.

“Bottom line: You would probably need pretty clear facts on your side to win,” Reiss says.

Good Fence Negotiations Make Good Neighbors

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Realtor.com quoted me in How to Build a Fence Without Ending Up in a Feud With Your Neighbors. It opens,

Good fences make good neighbors, but how do you make a good fence, exactly? After all, it’s not just a question of marking the division between two pieces of property. Do you and your neighbor both have a say on the height, style, and color—and should you split the costs evenly?

If you’re facing any of these questions as you contemplate some fence work, read on.

Does your neighbor have a say on your fence?

Whether your neighbor can weigh in depends largely on where you live, according to Marc Markel of Roberts Markel Weinberg Butler Hailey in Texas. Laws and regulations vary by state: In California, for instance, the “good neighbor fence” law requires neighbors to split the cost evenly.

To find your own local regulations, search online for “fence permit” along with your county and/or state. You can also visit statelocalgov.net: Click on your state and county to get to your local government’s website, where you can find info on fence permits or a phone number under “planning and zoning” to get your questions answered.

Fences may also be regulated by a homeowners association and/or your home’s restrictive covenant, which is typically found in your property deed and states how your land can be used.

For example, the height limit for fences is typically 6 feet for back and side fences and 4 feet for front-yard fences. Some covenants will spell out how repairs and new fences should be handled between neighbors—even if you build the fence entirely on your own property—while others will not. If there are no stated restrictions, then it’s basically up to you and your neighbor to work it out together, hopefully in a friendly manner.

David Reiss, a professor at Brooklyn Law School, says it’s always best to get your neighbor’s input rather than just forging ahead. In the best-case scenario, “they may volunteer to share the cost 50-50,” he points out. Plus, there may be aesthetic issues to discuss: “Do you save money by installing a cheaper fence with a front and a back, or do you spend more money and get a fence that looks good on both sides?”

Your neighbors may have strong feelings about these issues. It’s better to hear them out sooner rather than later.