Disclosure in Real Estate Sales - What can be kept confidential?

What is Disclosure?

First of all, a disclosure is a part of the purchase and sale contract that gives the Seller the chance to tell you about any defects he may know about his property. Why would he ever want to do that? Well, because it’s the law. It’s illegal for the seller to hide defects from the buyer. Yet there are some things that the seller doesn’t have to tell you, some things that you may really want to know.

Do you have to tell if you have ghosts in the attic?

Well, I will start with the silly stuff, like is the house haunted? That’s a grey area in disclosure. The courts tend to rule that if the buyer thinks that something is detrimental then it is detrimental. Yet what if the rumor is that the house is haunted but the seller doesn’t believe it? Is he still required to tell you a story he doesn’t believe at all? It would be like me telling you that there was something wrong with the house because it was built while Mercury was in retrograde, if I don’t believe in astrology. There was a case in New York where a seller was sued for not revealing that the house was haunted, and lost. Part of the case hinged on the fact that the seller published a story in Reader’s Digest about the haunted house, so that proved that the seller believed it.

How about a grisly crime, do you have to tell?

But if you take it a little further, there is something a little more serious that the Seller is not required to tell you in Georgia. That is if the home “was the site of a homicide or other felony (including rape) or the site of a suicide.” The argument behind this rule is that these types of events do not affect the physical condition of the property. The effect is more psychological. But here is the twist: The Seller or the listing agent does not have to reveal the information, but if the seller or the agent knows about such information, and is asked, he (or she) is required to answer truthfully. This is an important point. They are not required to reveal the information but are required to answer truthfully if asked.

What if there was a diseased person living in the house?

What else does the seller not have to tell you? Well if the home was occupied by someone with a disease “which has been determined by medical evidence as being highly unlikely to be transmitted through the occupancy of a dwelling” which includes aids, the seller or agent is not required to tell you about that either. Here is another twist: They are not allowed to tell you if the house was occupied by someone with aids. It falls within the jurisdiction of fair housing law, since aids has been ruled to be a handicap. How do they answer? They should tell you that they are not allowed to answer that question.

How about criminal activity in the neighborhood?

It goes on…. What about sexual predators or paedophiles in the neighbourhood? The lawyers that write the Realtor’s contracts in Georgia have actually added a paragraph warning the buyers that if they have concerns they have to go to the website and do their own research. If the seller doesn’t have to tell you about felonies committed in their own house they definitely don’t have to tell you about felonies committed by their neighbours in other parts of the world.

What does this mean to you, the prospective buyer?

What does this mean to the buyer? Do your own research. Call the local precinct and get the crime records for the area. Go to the web and search the sexual predator database. Talk to the neighbors. Find out if there are ghosts, noisy neighbors or suspected drug dealers on the street. Don’t wait until after you close on the house to find out why you might not want it!

Dan Connolly

RE/MAX OF BUCKHEAD

There is help out there!

In todays volatile lending market there is an old standby that is moving forward to a new place in American finance…. The FHA loan.

The History of the FHA The Federal Housing Authority was set up after the depression of the early 1930’s to help Americans recover from the tremendous numbers of foreclosures during the depression and get Americans back into home ownership. Prior to the FHA there were not 30 year loans generally available, people were financing homes with 5 to 10 year loans. FHA may be doing the same thing now as traditional lending goes through it’s changes. Initially and for most of the history of the organization it was completely self funded and did not rely on any taxes for it’s operating capital. It was funded initially by mortgage insurance premiums and appraisal fees. It took till this year for the FHA to come to the Government to help make up a budget shortfall. The predictions are that the FHA will recover as it is the only option for credit challenged borrowers, and is writing a record number of loans.

Today’s FHA We have seen conventional loans tacking on rate increases for borrowers with lower credit scores. A couple of years ago anything above 600 was considered decent while now some lenders are adding 1/2 a point to the interest rate on 30 year fixed rate loans for borrowers with credit scores between 650 and 680 and 1.25% added to interest rates for borrowers with credit scores between 620 and 650. Below 620 is considered “subprime” and the rates rise dramatically. Yet FHA will still make loans to borrowers with credit scores as low as 580. These are 3% down loans with interest rates fluctuating between 6 and 6.25% 30 years fixed. FHA has recently started charging a premium based on credit scores as well. The loan amount has increased to $346,250 recently in most of metro Atlanta. It may now be a better deal for not only credit challenged buyers, but for the mid-range credit purchaser with 650-680 credit scores.

There is a one time mortgage insurance premium of 1.5% of the loan amount which can either be paid in full at closing or added to the loan amount and financed, then there is a monthly mortgage premium which is .5% of the loan amount per year, (1/12 of that paid each month). Conventional loans also have mortgage insurance.

Some of the Guidelines for FHA insured loans after Bankruptcy or Foreclosure

FHA INSURED LOANS are available to people who have had both bankruptcies and foreclosures in their past. There are some restrictions, the borrower must have virtually perfect credit since the bankruptcy or the foreclosure. These loans are also subject also to normal qualifying guidelines with income and debt limitations.

• Chapter 13 Bankruptcy There must be 12 consecutive months of on time payments on all accounts (including utilities, cell phones etc) from the filing of the chapter 13 bankruptcy.
• Chapter 7 Bankruptcy There must be 24 months of perfect credit from the disposition of a Chapter 7 bankruptcy.
• Foreclosure There must be 3 years of perfect credit from the foreclosure.

I had a call last week from a woman who wondered where she could find out if certain homes for sale were approved for FHA financing. As I talked to her about the fact that, for the most part, it takes an appraiser to determine whether or not a home qualifies, I tried to explain what she would need to look for so she could avoid paying for appraisals on property that may not qualify. It occurred to me that there was a good blog post in that explanation so here it goes!

FHA appraisers do a different type of appraisal than appraisers for conventional loans. They are more concerned with the health and safety of the borrowers. They look at the standard things that all appraisers look at, and they take it a little further. FHA is not only concerned with the property value but is also concerned with things like handrails on steps, broken windows, lack of screens, evidence of rodent infestation and other issues that don’t affect a normal appraisal to the same degree. If the house was built before 1978 and may have the potential for lead based paint, the FHA appraiser looks for peeling paint. The FHA appraiser needs to see that the bedrooms have egress in case of a fire, the windows have to work and if there are burglar bars they need to have the code approved methods of opening them from the inside in case of a fire. They want to see smoke detectors. The FHA appraiser needs to see window screens if there isn’t central air conditioning. They look at the remaining life of the roof and the furnace and hot water heaters and want to see a stove in the kitchen. The utilities have to be on during the appraisal and they check that the various components are working. The appraiser looks for evidence of environmental contaminants like asbestos and mold. The FHA appraiser looks for earth to wood contact and other evidence of termites.

So for the most part, the home has to be livable. If the carpet can be cleaned or the house needs paint to make it clean and fresh, this will not generally be enough to cause the appraiser to require that the work be done before closing (or after). If you want to read the actual FHA appraisal guidelines you can see an article from HUD here. The basic HUD website can be found here and the FHA Appraisal page has an overview of the entire process.