Understanding the Risks of a Bond for Title in Alabama

Bond For Title

For those who are unable to qualify for a conventional mortgage, a bond for title may seem appealing since it is a way for you to invest in a home through owner financing instead of just paying rent.  A bond for title is an installment sales contract where the owner is financing the sale of property but not transferring title of the property to you until the terms of the contract are complete.   If you are considering entering into a bond for title, it is important for you to understand what risks are associated with such transactions.

Risks of a Bond For Title

1. Seller has mortgage on the property

If a seller still has a mortgage on the property that they are now trying to sell to you, then two major issues arise.

Due on Sale Clause

The first issue is the seller’s mortgage company likely has a due on sale clause written with the mortgage contract with the seller.  A due on sale clause means that the entire mortgage balance becomes due if the seller does anything to jeopardize the mortgage company’s rights to the property.  A bond for title is one of the types of transactions that a due on sale clause is designed to prevent.

Trusting the Seller

 The second issue is trusting the seller to use the money you pay to him to pay off his mortgage.  If you enter into a bond for title, you do not want to pay a large down payment and be paying on the property for a period of time only to discover that the seller was not paying his mortgage payments and the home is going to be foreclosed upon by his mortgage company.

Do your homework

Do not rely on the seller’s word on whether there is a mortgage on the property.  Instead, do your homework by going to your county probate office and researching whether there are any mortgages or liens placed upon the property address.  If there are liens or mortgages then you really need to think twice about entering into a bond for title on that property unless you are willing to take the risk.

Clause May Allow Seller Option To Void Contract And Convert To Lease

 Most bond for title contracts in Alabama have a provision that allows the seller to void the contract and treat it as a month to month lease if you default on your installment payments.  If you never are late on payments then this clause would not be a problem for you.  However, circumstances may change that cause you to default on the payments and if you do and the seller notifies you that he is treating the contract as a month to month lease then you really have no rights to enforce the sale unless you can prove to a court that the seller did not enforce strict compliance of this clause (meaning you have been late before and he has always accepted payments late).  To prove the clause should not be enforced requires a court to become involved and answer the question of fact whether the seller relied on the clause or waived it be accepting payments late in the past.

You Do Not Obtain Title Until All Terms Are Completed

 With a bond for title, the title of the property does not transfer to you until you complete all payments/terms of the contract.  The risk involved here is if the seller dies then you may have multiple heirs to deal with to determine who you pay to complete the terms and who will transfer title to you once you have performed all the terms.

Consider Owner Financing Instead of a Bond for Title

As an alternative to a bond for title, try to have an owner finance the mortgage for you so that the title is transferred into your name at closing and the seller will take a mortgage on the property until the loan is paid in full.  If you were to default on the loan, the seller would have to foreclosure on the property instead of converting the contract to a lease (see risk #2 above).  In order to do owner financing, the seller would have to own the property free and clear to be able to transfer the title to you which would eliminate any risks of the seller having a mortgage on the property you are buying (see risk #1 above).

Right of Redemption in Alabama

Right of Redemption Basics

The right of redemption period is the period in which the former owner of a foreclosed property can buy back the property, regardless of whether the current owner wants to sell. The period begins on the date of the sale of the foreclosed property.

The Time Period

Until January 1, 2016, the right of redemption for residential property was one year. However, a bill passed several years ago changed the right of redemption for certain homesteaded properties. The recent change only changed the right of redemption for a narrow subset of properties – homesteads with a mortgage created on or after January 1, 2016.

• If the mortgage was created before January 1, 2016, the right of redemption period is one year, for all real property.
• If the mortgage was created on or after January 1, 2016, the right of redemption period is six months for a homesteaded property.

Notice of Foreclosure and a Recent Change

Alabama law requires the mortgagee, or financial institution, to provide notice to the mortgagor, or homeowner, of the foreclosure sale. If the mortgagee does not provide the notice as required, the right of redemption start date does not begin until the notice requirements are met. However, the law on notice was recently changed to state that, even if the notice is never corrected, the right of redemption period is one year from the foreclosure sale.

Two other points on notice are important to remember: 1) inadequate notice does not invalidate the foreclosure sale, and 2) possession or production of proof of mailing the notice is an affirmative defense if a lawsuit alleging inadequate notice is filed.

Questions to Ask

To determine the right of redemption period, ask yourself the following questions:

1. Was the mortgage created before or on/after January 1, 2016?
   1. If before, a one-year period applies to all property.
2. If the mortgage was created on or after January 1, 2016, was a homestead exemption declared on the property for the tax year during which the sale occurred?
   1. If the answer is yes, then the right of redemption period is six months.
   2. If the answer is no, then the right of redemption period is one year.
3. When was notice given to the mortgagor at the address of the foreclosure property?
   1. If given before the foreclosure sale, then the right of redemption period is six months or one year from the foreclosure sale, depending on the answers to 1 and 2 above.
   2. If after the foreclosure sale or notice was not given, the redemption period begins when notice is given, but remember that the redemption period cannot go beyond one year from the foreclosure sale. For example, if notice of the foreclosure is given nine months after the foreclosure sale, the redemption period is three months – until the one-year date.

Who Can Redeem

Alabama law sets out seven categories of those entitled to redeem real estate after a foreclosure sale. Those are as follows:

1. Debtors
2. Mortgagors
3. Junior mortgagees, or transferees
4. Judgment creditors, or transferees
5. Transferees of the interests of the debtor or mortgagor, either before or after the sale
6. Spouses of debtors, mortgagors or transferees of a debtor or mortgagor, if married on day of foreclosure sale
7. Children, heirs or devisees of a debtor or mortgagor

A Few Tips

If you have customers who purchase a property out of foreclosure, here are a few practice notes:

• Redemption rare – After explaining all the details on the right, remember that the right of redemption is rarely exercised.
• Be prepared – Even if redemption occurs very infrequently, purchasers should be prepared by maintaining records of and receipts to any permanent improvements made on the land since the foreclosure sale.
• When redemption happens – Purchasers of foreclosed properties are entitled to be paid back certain costs, including the purchase price, insurance premiums and permanent improvements. Once a purchaser receives a letter requesting an itemized statement of debts and charges from a party exercising the right of redemption, the purchaser has 10 days to provide the statement, or risk forfeiting the compensation related to improvements.

Source: Ala. Code §§ 6-5-247 to 6-5-257.

Buying a Home with a Non-Spouse

When multiple people participate in a home purchase, they may not be married. They might be in a legal domestic partnership, committed relationship, common law marriage, or even strictly business partners. When it comes to buying a home with someone you’re not married to, there are things to take into consideration before making the very big decision of buying the home. Also, it’s important to check state and local laws as some states and towns have laws that prohibit unmarried couples from buying property together.

Share Financial Information

Sharing financial information is a big must when it comes to buying property with anyone (whether married or not). Financial information includes everything from income/salary, all debt (any current loans, student loan debt, car loans, etc.), credit scores, retirement accounts and any other income that might not be from a regular job. You have to be completely upfront about all finances, especially if you plan on applying for a mortgage loan. When applying for a mortgage loan, married couples have an advantage; they may be able to use the better credit history/credit score to apply for a loan; for couples that are not married, the mortgage lender will treat each person as an individual, meaning the lower of the two scores will take precedence when it comes to the terms of the loan.

Discuss and Plan Who Pays What

Buying a home is a big financial decision, and requires a sound understanding of who will be responsible for what. This includes paying any mortgage payments, household bills, property taxes, etc. If you’re purchasing a property with someone you’re not legally married to, it’s important to spell out and have a firm written ‘contract’ regarding who pays for what or how much. Before you buy, you need to agree on how much each person is going to contribute to the down payment, how much equity percentage each person will have in the property, and what each person will contribute to the mortgage, taxes, utilities, maintenance and anything else that may come up.

Have a Joint Bank Account

While joining bank accounts with the person you buy a home with isn’t a necessity, it is a good idea to have a shared account in which each person deposits their share of the home costs. When it comes to paying a mortgage, there are easier ways to pay beyond writing a check. With the advent of online banking and automatic withdrawal, you can set up the mortgage payment to come out of a joint account on the same day each month, making the mortgage payment easy and stress-free. With a shared account, any money for household bills, property improvements, taxes and anything else that may be considered important can come out of the joint account.

Credit Surprises

For buyers applying for a mortgage loan, maintaining the same level of credit between being approved and the final closing is extremely important for a successful transaction. A person’s credit can be impacted by anything: changing jobs, getting a new credit card, closing a credit card, falling behind on payments, and even adding additional debt through large purchases. Surprises when it comes to a buyer’s credit can be a deal breaker for the lender; to prevent issues, a buyer can contact the lender ahead of closing to discuss any surprises that may have come up and come to a solution. The best way to prevent credit surprises: avoid making large financial decisions prior to closing.

Decide On the Type of Title

When buying a home with someone you’re not married to, there are three different ways to “take title:”

Sole Ownership – This is where only one person’s name is on the title/deed, which means that one person is the only legal owner. Sometimes this choice is a good idea if one partner has poor credit and doesn’t want to be part of the mortgage decision. Other times, the higher-income partner may want to be able to use the house-related tax deductions on his/her taxes. The good news is that if the other person wants to be added to the title later on, there is a process in which to do it.

Joint Tenants – This option is available for those owners that want to have equal shares of the property. Both a benefit and a risk of this type of title is that one partner cannot sell the house without the other partner’s permission. Should one of the partners die, the “right of survivorship” guarantees the other partner inherits the other half of the property. In most states Joint Tenants comes with the right of survivorship, while in others it will need to be specifically stated on the title.

Tenants in Common – This is an option that allows multiple owners of a home/property, and for the owners to possess unequal shares. With this type of title, it is possible for any one of the owners to sell his/her share of the property at any time. Should one party die, that party’s share is left to whomever the party wished – the share doesn’t automatically go to the other owner(s). If this title is chosen, it’s important to get the percentages in writing, as very often the law will assume an equal split of the property.

Whether in a committed relationship, business partners, or buying property with a sibling/friend, property ownership is definitely a possibility. If you have any questions, your agent is able to provide additional guidance on buying a home with a non-spouse.

Thinking of Investing

Real estate is at the core of any business we come across and if you are interested in becoming a real estate investor, then this could be the best decision of your life. A right attitude and mindset will help you succeed along with a few tips that I have collected in my 10 year association with the real estate world. I have had a period of trials and errors but have realized that if you focus on residential properties then you cannot lose.
Tip 1: Begin small: Don’t expect to shoot up the curve on Day 1 as this happens only in miracles. The reason to begin small is that you are still quite new and inexperienced. You need to keep your risk factors low for fear of losing it all. First, you need to learn the basics of real estate investment and spend only the minimum amount of money. If you invest less time and more money, the end result may not be very pleasant. The ABCs have to come first and then the sentences. Attend training sessions, read books, browse online and talk to people in the real estate business to develop yourself.
Tip 2: Speculation does not work: You need to go for value while making your investment. How do you do it? You need to locate properties where cash flow is more along with potential gains. Value investment is the basis for making wealth from real estate. What is the difference between a value investor and a speculator? The difference is simple. A speculator is hopeful that the property price will increase in the future based on grounds which may be quite flimsy. It is like playing casino in Las Vegas. Whereas a value investor looks at the overall value and then invests in any property.
Tip 3: Don’t wander away from home: You are a beginner and need to concentrate on properties closer to home. The reason is you know the area well and it is a safer bet than starting in an unknown city. You know the trend in your city and the areas that are growing or declining along with the properties that are good. Also you know about upcoming properties and when to make a good investment. You need to stay close enough and observe the trends.
Tip 4: Mistakes will happen: Everybody I know has made mistakes as a real estate investor. Don’t treat your mistakes as failures as they are the perfect way for you to gather experience. Failing is a part of the learning curve and will help you to learn fast. Once you stumble and fall, you will rarely make the same mistake again.
Tip 5: Keep your aim realistic: All of us want to get rich quickly but making blunders will actually do the reverse. You need to be sure about the cost to you for the cash flow you desire. Calculate in terms of ROI. If you want an ROI of 20%, then what should it cost you and so on. You also need to keep in mind the losses you may make if the deal goes wrong and whether you can afford it. You need to think in terms of Is no rent for sometime if the tenant moves out affordable?’ or affordability of maintenance of the property and things to that effect. If real estate investment adds to your financial burden, then it is a sad situation.
Tip 6: The uglier the better: This is better done when you are not a green hand. The idea is to look for properties with problems and by fixing the problem, increase its value instantly. Suppose the property has a damp problem or has termites because of which you get it at a cheaper than market rate. Turn it around by taking care of the problems and sell it at a premium or increase the rentals.
Tip 7: Calculate beforehand: Just buying a property because you can afford it is not enough. If you are thinking in terms of investment, you need to do a few basic calculations. The main things would be – the price you need to pay for the property, monthly installments as well as down payment, loan you need, interest to the bank, rental income, cost of maintenance and other factors. When you add them up you should be making money and not being drained out of existing resources.
Investing in real estate is a safe bet provided you know the basics. Study the market and plunge in to make the best of your investment. Remember, nothing works like real estate business.

By Jonas Swain

The Right of Redemption by State

The right of redemption is the right of a homeowner in foreclosure to “redeem” the mortgage and keep the house by paying a certain sum of money within a certain period of time. Depending on the laws of their state, homeowners in foreclosure may have two separate rights of redemption: a pre-foreclosure equitable right of redemption and a post-foreclosure statutory right of redemption.

The Equitable Right of Redemption

All homeowners, no matter what state they reside in, have the right to redeem their mortgages and save their homes from foreclosure by paying off the entire mortgage balance, plus fees and costs, prior to the foreclosure sale. Although most homeowners in foreclosure will find it difficult to come up with all the cash required to redeem in a lump sum, mortgages may also be redeemed by refinancing the mortgage debt or selling the home to a purchaser.

The Statutory Right of Redemption

About half of all states have laws that give homeowners the right to redeem their mortgages for a period of time after the foreclosure sale, typically by paying the foreclosure sale price, plus interest and other allowable fees, to the foreclosure sale purchaser. If a home sells at a foreclosure auction for a price far below its fair market value, the homeowner may be able to recoup the equity by redeeming the property for the foreclosure sale price, selling the home to a buyer for the fair market value, and keeping the difference.

State Laws Regarding the Right of Redemption

Each state has its own law governing a homeowner’s right of redemption. Find your state in the list below to find out whether you have the right to redeem your mortgage after the foreclosure sale and what restrictions may apply.

STATE	MOST COMMON METHOD OF FORECLOSURE	DO BORROWERS HAVE A STATUTORY RIGHT OF REDEMPTION AFTER FORECLOSURE?
Alabama	Nonjudicial	Yes, within one year after foreclosure sale. Right of redemption extinguished if borrower fails to turn over possession within ten days of buyer’s written demand for possession.
Alaska	Nonjudicial	Not after nonjudicial foreclosure unless the deed of trust specifically provides a right of redemption. If the lender pursues a judicial foreclosure, there is a 12-month redemption period after the sale is confirmed
Arizona	Nonjudicial	Not after nonjudicial foreclosure. Yes, within six months after a judicial foreclosure sale; if the property was abandoned, redemption period is 30 days.
Arkansas	Nonjudicial	Not after nonjudicial foreclosure. Yes, within one year after a judicial foreclosure sale, but not if the mortgage or deed of trust waives the right to redeem.
California	Nonjudicial	Not after nonjudicial foreclosure. Yes, after judicial foreclosure, but not if a deficiency judgment is waived or prohibited. Redemption period is three months after foreclosure sale if foreclosure sale price is equal to or greater than outstanding mortgage debt plus interest and costs; otherwise, redemption period is one year after foreclosure sale.
Colorado	Nonjudicial	No.
Connecticut	Judicial	Not after strict foreclosure, where the court transfers ownership of the foreclosed home directly to the foreclosing lender. (Law Day is the last date to redeem. Strict foreclosure is most commonly used in Connecticut). After a foreclosure by sale, the homeowner can redeem up until the court confirms the sale.
Delaware	Judicial	No. (Only up until the court confirms the sale.)
District of Columbia	Nonjudicial	No.
Florida	Judicial	Yes, until the court clerk files the certificate of foreclosure sale or the date specified in the foreclosure judgment, whichever date is later.
Georgia	Nonjudicial	No.
Hawaii	Judicial	No.
Idaho	Nonjudicial	No, not after a nonjudicial foreclosure. If the foreclosure is judicial, you can redeem within six months after the sale, if the property is 20 acres or less, or within one year after the sale, if the property has more than 20 acres.
Illinois	Judicial	Yes, within seven months after the foreclosure complaint or three months after final foreclosure judgment, whichever date is later, by paying amount of outstanding mortgage debt plus interest and costs (“Redemption Price”). If fair market value of property at time of foreclosure judgment is less than 90% of Redemption Price and lender waives right to deficiency judgment, borrower may redeem within 60 days after the foreclosure judgment date, or the expiration of any reinstatement period, whichever is later. If foreclosure sale purchaser was foreclosing lender and foreclosure sale price is less than Redemption Price, borrower may redeem within 30 days after confirmation of foreclosure sale by paying foreclosure sale price plus interest and costs.
Indiana	Judicial	Yes, after foreclosure judgment but before foreclosure sale by paying amount of judgment plus costs and interest. Not after foreclosure sale.
Iowa	Judicial	Yes, within one year after judicial foreclosure sale or six months after the sale, if agreed upon in the mortgage documents and the lender waives a deficiency. Not after alternative nonjudicial foreclosure.
Kansas	Judicial	Yes, within 12 months after foreclosure sale; court may shorten redemption period if property is abandoned. If less than one-third of mortgage was repaid, redemption period is three months; redemption period may be extended if borrower loses primary source of income after foreclosure sale. If outstanding mortgage debt is less than one-third of property’s fair market value, redemption period is twelve months.
Kentucky	Judicial	Yes, within one year after foreclosure sale only if the foreclosure sale price is less than two-thirds of the property’s fair market value.
Louisiana	Judicial	No.
Maine	Judicial	Yes, within 90 days after foreclosure judgment if mortgage was executed on or after October 1, 1975 and within a year if mortgage was executed before October 1, 1975. To redeem, borrower must pay amount of foreclosure judgment plus interest, fees, and costs.
Maryland	Nonjudicial	No. Not after the foreclosure sale is ratified by the court.
Massachusetts	Nonjudicial	Not after nonjudicial foreclosure. Yes, within three years after judicial foreclosure sale. If foreclosing lender gets deficiency judgment, borrower may bring suit for redemption within one year of deficiency judgment.
Michigan	Nonjudicial	Yes. For residential properties of four units or less, redemption period varies as follows: six months if mortgage executed on or after January 1, 1965 and outstanding mortgage debt is more than two-thirds of original mortgage debt; three months if property is abandoned and outstanding mortgage debt is less than or equal to two-thirds of original mortgage debt; one month if property is abandoned and outstanding mortgage debt is more than two-thirds of original mortgage debt; one year for all other residential properties of four units or less.
Minnesota	Nonjudicial	Yes, within six months or one year after foreclosure sale, depending on the circumstances. One month redemption period for abandoned properties.
Mississippi	Nonjudicial	No.
Missouri	Nonjudicial	Yes, within one year after foreclosure sale only if foreclosing lender is purchaser at such sale. Borrower must give written notice of intent to redeem at the sale or within ten days before the sale. Borrower must post a redemption bond within 20 days of the sale.
Montana	Nonjudicial	Not after nonjudicial foreclosure under the Small Tract Financing Act. Yes, within one year after judicial foreclosure sale.
Nebraska	Nonjudicial	No redemption period after nonjudicial foreclosures. Up until court confirms the sale, if foreclosure is judicial.
Nevada	Nonjudicial	No for nonjudicial foreclosures. One year if the foreclosure is judicial.
New Hampshire	Nonjudicial	No.
New Jersey	Judicial	Yes, during 10-day objection period after the sale and up until the court issues an order confirming the sale if objections are filed. Also if foreclosing lender gets deficiency judgment; redemption period is six months after deficiency judgment. To redeem, borrower must pay amount of foreclosure judgment plus interest, costs, and certain expenses.
New Mexico	Judicial	Yes. Borrower may redeem within 9 months, however this period may be reduced by the mortgage or deed of trust to no less than one month.
New York	Judicial	No.
North Carolina	Nonjudicial	Yes, within the ten-day “upset bid” period after foreclosure sale by paying outstanding mortgage debt plus costs.
North Dakota	Judicial	Yes, within 60 days after foreclosure sale. (If the property is agricultural, within one year after the foreclosing lender files the complaint and summons with the court, or 60 days after the sale, whichever is later.)
Ohio	Judicial	Until court confirmation of foreclosure sale by paying amount of foreclosure judgment plus costs and interest.
Oklahoma	Nonjudicial	Until completion of the sale. (In a judicial foreclosure, until court confirmation of foreclosure sale.)
Oregon	Nonjudicial	No, if the foreclosure was nonjudicial. If the foreclosure was judicial, you can redeem your home within 180 days after the foreclosure sale.
Pennsylvania	Judicial	No.
Rhode Island	Nonjudicial	If the foreclosure was nonjudicial, you don’t have the right to redeem your home after the foreclosure. If the foreclosure was judicial, you get three years to redeem after foreclosure sale by paying outstanding mortgage debt plus costs and interest.
South Carolina	Judicial	No. (While there is no post-sale right of redemption in South Carolina, under certain circumstances the homeowner could get the house back by making an “upset bid” after the foreclosure sale.)
South Dakota	Judicial (homeowner can request it)	Yes, generally one year or 180 days, if mortgage contains language that the 180-Day Redemption Mortgage Act governs. If property is abandoned, redemption period is 60 days.
Tennessee	Nonjudicial	Yes, within two years after foreclosure. Right of redemption may be waived in mortgage or deed of trust.
Texas	Nonjudicial	No.
Utah	Nonjudicial	Not after nonjudicial foreclosure. Yes, after judicial foreclosure (within 180 days after the sale).
Vermont	Judicial	Yes, within six months after court’s decree of strict foreclosure, where the court transfers ownership of the foreclosed home directly to the foreclosing lender, unless the court orders a shorter redemption period or you and the foreclosing lender mutually agree to a shorter period. In a foreclosure by judicial sale, the redemption period is six months from the date of the foreclosure decree, unless the court orders a shorter time.
Virginia	Nonjudicial	No.
Washington	Nonjudicial	Not after nonjudicial foreclosure or if the court determines that the homeowner has abandoned the home for six months or more. Yes, within eight months after judicial foreclosure sale if foreclosing lender waives right to deficiency judgment; if foreclosing lender fails to waive right to deficiency judgment, redemption period is one year.
West Virginia	Nonjudicial	No.
Wisconsin	Judicial	Yes, after foreclosure judgment but before foreclosure sale by paying amount of foreclosure judgment plus interest, taxes, and costs. (There is no post-sale right of redemption.)
Wyoming	Nonjudicial	Yes, within three months (or 12 months, if the property is agricultural) after foreclosure sale.

Negotiations and Real Estate

When it comes to a real estate transaction, whether you’re a buyer or a seller, everything is negotiable. For many couples and individuals, a house or property will likely be the largest asset they ever own, which is why when it comes to the actual transaction, negotiating is incredibly important. Negotiating in real estate is more than just deciding on the sale price of a property or who will cover closing costs, and some negotiations will probably happen after the sale agreement is signed. Every aspect of a property can be negotiated, and it will be important to come to the negotiation table ready for anything.

Primary Items for Negotiation

Price

The seller will want the highest selling price; the buyer will want the lowest amount. Unless you’re in a bidding war with multiple offers, there will be room for negotiation when it comes to the actual sale price of the property. As a buyer, you don’t want to feel like you’re getting taken advantage of, and as a seller you don’t want to feel like you’re getting low-balled. Area comps and other pieces of information about the property will help both parties negotiate a fair price. Also, if a home is need of modern updates, or is just rundown in general, a buyer can use that to their advantage when it comes to negotiating the sale price.

Closing Date

A motivated seller will likely want a quick closing, but if a buyer has to wait for financing, or they have a contingency (like their current home has to sell), negotiating a closing date can either be very quick or complicated. Another item that can be negotiated: when the seller vacates the property. For some sellers, they may need additional time for moving their items, etc. Both parties have the option of negotiating a possession date or even a rent-back agreement, allowing the seller to remain in the property for a specified amount of time after closing.

Closing Costs

Who normally pays which closing costs vary state by state, but as it’s said, everything is negotiable. A buyer may be able to negotiate with the seller to see if the seller can will cover some of the buyer closing costs.

Inspection and Repairs

Home inspections can pinpoint items that should be updated or fixed. It’s up to the buyer and seller to negotiate on the items that will be fixed based on any inspections and appraisals that take place. If the seller doesn’t have the funds to fix things that come up in an inspection, the buyer may be able to use it to his/her advantage when it comes to negotiating other items like the final sale price or who will cover the closing costs. While the seller normally specifies that the house comes ‘as is,’ there is usually opportunity for negotiation.

Fixtures

Unless it’s clearly stated that certain fixtures or appliances will go with the seller, a buyer can negotiate to keep fixtures and other items upon the sale of the property or require they be removed. Fixtures can include appliances, blinds and window panels, outdoor equipment, a hot tub and anything else. If a buyer sees something they’d like, there’s no harm in negotiating that the items stay with the new owner.

Home Warranty

Home warranties have become extremely popular in the U.S., especially for those buying homes that are not new construction. These plans typically cover a home’s systems (central air, central heating, etc.) and major appliances, with some plans even covering more items. Buyers have seen an increase in home warranty negotiations as they’re a great asset to a new homeowner.

Financing

When buying a property, the buyer will either be able to pay in cash, require a mortgage loan to cover the cost or have the seller carry the contract. Buyers who will need a mortgage may have to wait to be approved, whereas buyers with cash will likely be able to close sooner. A way to avoid financing negotiations is to, if applying for a mortgage, be fully pre-approved prior to making an offer.

Title expert provides commentary on Alabama’s “Right of Redemption”

Often I am asked about the right of redemption that arises with a foreclosure and our ability as a title company to insure over that right. While this right is something that should be addressed, it should not create an insurmountable barrier to sales or lending on the property. Your title company should, in most cases, be able to provide the coverage that the lender will need in order to finance the sale.

In Alabama, a lender is not required to file a judicial foreclosure or a court ordered foreclosure. A judicial foreclosure is more expensive and time consuming. This is one of the reasons that our state will recover more quickly from the recent downturn than some of our neighboring states that require the court to be involved. This efficiency has allowed Alabama to process and address the problems more rapidly. However, the check and balance to the speed and ease available in non-judicial foreclosures is the statutorily created right of redemption that arises. This right allows those that hold the right to redeem the property from the lender or any subsequent buyer for the redemption amount within a year of the foreclosure. After the year has passed, the right is extinguished forever.

The right to redeem extends to three levels. The first and primary level is the borrower or the guarantors to the note. The second position is held by any junior lenders who also have a secured interest in the property. Finally, any judgment creditor would also have a right to redeem. This would include anyone who has filed suit and holds a judgment under the suit. This suit may have nothing to do with the property. However, the judgment would attach to the property.

We are often asked to remove or insure over the right of redemption. The reality is that we can never simply remove the exception. Even if the borrower has assigned the right to redeem back to the lender or to the new purchaser, the right has not been eliminated. It does, however, mitigate the risk. An assignment of the right does not cover all of the holders of the right and we may not even be able to identify who holds the right. For example, if the borrower dies then his heirs would then hold the right. Additionally, if the borrower were to file for bankruptcy, the trustee may be able to exercise the right to redeem.

While we can never delete the exception for the right of redemption, we can often insure over the exception. This means that the insured would be covered if the property was redeemed. Unfortunately, we cannot insure over the right for the buyer. Although there are ways to mitigate that risk the buyer will be assuming some risk when purchasing the previously foreclosed property. We can, however, insure over the redemption right for the lender in two instances. The first is if the new loan is less than or equal to the redemption price. The redemption price is based on the amount paid at the foreclosure sale plus foreclosure expenses and interest and necessary repairs. (The subject of what constitutes a necessary improvement is the subject for another day.) If the new loan is less than the redemption price, we can give affirmative coverage to the lender which will allow for the financing and the purchase. The second scenario occurs when the redemption amount is less than the new mortgage amount. In that case, we typically would require a bond in order to give the affirmative coverage over the right of redemption to the lender.

The reality is that foreclosed properties are a significant segment of the market and will probably continue to be so for some time. While they do create special risks and problems, they also create opportunities for buyers. The right of redemption is a reality that travels with the properties at least on a temporary basis. However, the title company can give the lender comfort though affirmative coverage over the right that will allow the purchaser to finance and close the transaction. Your title company should be your partner in any transaction. Use your title company to help your deals flow more smoothly and efficiently.

Why is it important to get prequalified/ preapproval?

In real estate, the main challenge may not be getting a mortgage, but really getting a mortgage that is right for you with the best terms and cost. Preapproval gives you an added piece of information when getting ready to make a purchase offer on a house. You already know what your income and expenses are, with preapproval you now know what your interest rate and monthly mortgage payments could be as well.

Furthermore, when actually wanting to make a purchase, buyers are usually required to apply and possibly secure financing within a set time period. This period could be as short as a week. By already being preapproved and knowing the lender you want to go with, you won’t need to scramble and possibly make a hasty decision.

When obtaining preapproval you will also receive a preapproval letter. This can be shown to sellers when bidding on a property. It proves that you already have backing and the ability to go through with the sale, which makes you a much more attractive buyer to sellers.

Closing Day Surprises

For many buyers, closing day can’t come fast enough. Once the offer is made and accepted, the time between can seem like eternity. For many, closing day goes smoothly. For others, there may be some unexpected surprises that pop up. While closing day problems are not usually anticipated by a buyer, they are not unheard of, and depending on what kind come up, some can be minor while others can impact the entire deal. Here are some of the most common closing day surprises.

Walk-Through Surprises

For many buyers, a final walk-through is a must before closing as it allows the buyer to ensure the property’s condition hasn’t changed since the last visit and that any agreed-upon repairs have been done per the contract. If moving furniture created a new hole in the wall, agreed-upon fixtures have been removed, or the property is in total disarray, the issues need to be addressed immediately. The buyer’s agent should work with the seller’s agent to resolve any surprises that have come up. Walk-through issues are generally not deal breakers, but they can be a thorn in a buyer’s side.

Document Surprises

A common surprise at closing is an error in the documents. Errors can include misspelled names, incorrect addresses, and even incorrect loan amounts or missing pages. Some issues can cause an hour or two delay, while others can result in a much longer delay. To avoid any document surprises, a buyer can request to see every document ahead of closing. Loan documents should be scrutinized prior to closing; by law, a buyer should receive a Loan Estimate form and Closing Disclosure form three days before closing. Once these forms are received, it’s up to the buyer to double-check the loan amount, down payment amount, interest rate, and all personal information, including spellings. If questions arise, the sooner they’re answered the better.

Title Surprises

When buying a home, a title company will make sure the title to a property is legitimate by doing a title search, which is essentially a thorough examination of property records to make sure the title is clear of any liens or claims on the property. Title surprises can include: IRS tax liens, unpaid property taxes, judgments, contractor or mechanics liens, identity affidavit, and encroachments. Some of these surprises can be resolved on closing day; others may take a significant amount of time to resolve and will undoubtedly delay closing. Once escrow opens, the title company completes a preliminary title report and sends it to the lender and agents involved — a buyer can get a copy from his/her lender or from the title company and check if there are any preliminary issues. Many purchase agreements include a specific time period for the buyer to bring up any concerns regarding the title, so if there are issues with the title, get the ball rolling on resolutions as soon as possible.

Credit Surprises

For buyers applying for a mortgage loan, maintaining the same level of credit between being approved and the final closing is extremely important for a successful transaction. A person’s credit can be impacted by anything: changing jobs, getting a new credit card, closing a credit card, falling behind on payments, and even adding additional debt through large purchases. Surprises when it comes to a buyer’s credit can be a deal breaker for the lender; to prevent issues, a buyer can contact the lender ahead of closing to discuss any surprises that may have come up and come to a solution. The best way to prevent credit surprises: avoid making large financial decisions prior to closing.

Mortgage Surprises

Credit surprises can impact a mortgage loan, but there are other mortgage surprises that can come up on closing day. In a hot real estate market, lenders can be incredibly busy and inundated with loan applications. Sometimes, a buyer’s loan file can find itself on the bottom of the pile, meaning there may be important items omitted, documents missing, or extra information needed to complete the file on time. For a buyer applying for a mortgage loan, asking the lender what documents will be required ahead of time can save time and prevent headaches on closing day. Buyers can also call or email the lender to make sure they have all the important documents, items, etc. to complete the loan file on time. Before closing, a closing agent will be assigned to the transaction (the closing agent coordinates the final steps of the transaction to make sure all documents and funds are in order and handled correctly) — the buyer can contact the closing agent to make sure the lender has all the needed documents, and if there is still any doubt, copies of all the documents and anything else that may seem important or pertinent to the transaction can be brought to closing.

Remember, your real estate agent is working on your behalf. Keep your agent informed — your agent wants to help you as much as possible, and he or she can be a great resource when you have questions.

How to Buy a House

When you start thinking about buying your first house, it’s easy to let your emotions run the show. Before you know it, you’re stalking homes for sale on your home-browsing app, rearranging your schedule so you can do drive-bys, and researching creative financing options that would allow you to buy a house with next to nothing down.

It’s all too easy to land in a house you can’t afford, and that mistake can affect your ability to build wealth in the long run. But understanding the steps of the home-buying process empowers you to make smart decisions about your home purchase.

The Home-Buying Process Is a Marathon

Let’s take a deep breath. Buying a house takes time. And no house—even that perfectly cute bungalow on the corner with the fenced-in backyard—is worth jumping into before you’re ready.

You know what’s more important than the house you buy? How you buy that house.

The decisions you make in the home-buying process can make a difference between a home that is a blessing to your family for years to come and a home that becomes such a financial burden that you feel like you can’t breathe.

Buying a house doesn’t have to be a stressful, draining experience. It can actually be a lot of fun, especially if you’re making smart decisions that focus on the long term. These tips will help you:

• Set realistic expectations for the home-buying process
• Calculate how much home you can afford and how much to save for a down payment
• Know how to find the best real estate agent
• Learn how to buy a house with confidence
• Define what to look for in your first house
• Know what to expect from contract to closing day

Ready to dig in? Home ownership, here we come!

Step 1: Get Your Money in Order

It’s tempting to skip the money question and jump straight into looking at homes in your area. After all, home shopping is way more fun than thinking through your finances! But a weak financial foundation is a recipe for regret when it comes to your home purchase.

Don’t shortchange your future by having a short-term perspective. You will build years of memories in your home. You’ll share countless meals in the kitchen and spend hours enjoying warm summer days in the backyard. Do you want those moments overshadowed by financial stress?

Buying a home is probably the biggest purchase you’ll ever make. Are you sure you’re ready? Answering these two questions will help you know!

Are you financially ready to buy a house?

 

Before you begin the home-buying process, we recommend paying off debt and saving up 3–6 months of expenses in an emergency fund. Here’s why:

When you no longer have a landlord, the responsibility of paying for repairs falls on you. So what happens if your water heater bursts after just three months in your new home?

When you don’t have room in your budget and no savings to fall back on, you may be eating ramen for the rest of the month to get that fixed. But if you have a full emergency fund and no debt taking up real estate in your monthly budget, your whole life won’t be rocked by an unexpected repair.

How much should you save?

 

Just like any goal, buying a home the smart way takes planning and preparation. The most time-consuming task is saving up cash for the down payment, closing costs, and other moving expenses.

• • Down payment. We recommend putting down at least 10% on your new home, but 20% is even better because you avoid private mortgage insurance (PMI). PMI is an extra cost added to your monthly mortgage payment, and it doesn’t go toward paying off your mortgage balance.

 

• • Closing costs and prepaids.  Clients should save around 3% of a home’s purchase price for closing costs and prepaids. But that percentage can vary depending on how expensive fees and taxes are in your area. Closing costs are the fees charged by title companies and lenders involved in your real estate transaction, and prepaids cover any prorated property taxes and insurance items.

 

• Moving and other expenses. Moving expenses can vary from hundreds of dollars to thousands depending on how much you’re moving and how far away your new home is from your current place. You can call moving companies in your area for quotes ahead of time to help with budgeting. If you plan to make updates to your home, like repainting, installing blinds, or buying new furniture, you’ll need cash for that too!

Saving for a home is a big step, but you’ve got this!

Step 2: Get Preapproved for a Mortgage

The best way to buy a home is with cash. It may sound crazy, but people like you do it every day! If that’s not feasible for you, you’ll need a home mortgage loan.

How do you get preapproved?

In a quick conversation with you about your income, assets and down payment, a lender can prequalify you to buy a house. Getting preapproved takes a little more work—a lender will need to verify your financial information and submit your loan for preliminary underwriting. But it pays off when you begin your home search since a preapproval letter shows that you’re a serious buyer.

How do you know which mortgage option is right for you?

Bad financing turns your biggest asset into a liability. That’s why getting the right mortgage is so important! Setting your boundaries on the front end makes it easier to find a home you love that’s in your budget.

Here are the guidelines we recommend:

• • A fixed-rate conventional loan. With this option, your interest rate is secure for the life of the loan, leaving you protected from rising rates. Any other mortgage option is a terrible idea.

 

• • A 15-year term. Your mortgage payment will be higher with a 15-year term, but you’ll knock out your mortgage in half the time and save thousands in interest.

 

• A monthly payment no more than 25% of your monthly take-home pay.This leaves plenty of room in your budget to achieve other goals like saving for retirement or putting money aside for your kid’s college fund.

Once you know how much you can afford to spend on your new home, stick to it. And if you’re buying a home with your spouse, make sure you’re both on the same page about your budget.

Step 3: Choose a Real Estate Agent to Help With the Home-Buying Process

Though your search for homes may start online, it shouldn’t end there. You can do a lot of research on your own, but you need the help of an expert when it comes to actually finding and securing your perfect home.

A buyer’s agent can help you navigate through the home-buying process. In some cases, they may even be able to help you find a house before it hits the market, giving you a competitive edge. And when it comes to making an offer, your agent will negotiate on your behalf so that you don’t pay a penny more than you have to.

How does a buyer’s agent get paid?

A real estate agent will advocate for your best interest and is a crucial part of your home-buying team. But they don’t work for free. So how much should you be prepared to pay?

How does nothing sound?

That’s right! In most cases, the seller pays your real estate agent’s fees, so using a buyer’s agent is free to you. Why would you not want a true pro in your corner as you make your biggest investment?

What should you look for in a buyer’s agent?

You may know a lot of real estate agents in your area. But keep in mind that not all agents bring the same knowledge and experience to the table. Don’t work with an amateur just because they know your cousin’s sister-in-law’s best friend from 10 years ago.

If you’re trying to spend time with a friend or family member, catch up over coffee. Don’t work with them to make your biggest purchase. You want an expert who can show you how to buy a home!

When you’re interviewing a real estate agent, don’t settle. A true rock star will have:

• Specific experience assisting home buyers like you
• Full-time real estate experience for at least two years
• Great communication skills
• A super-serving attitude that makes you feel like you’re their only client
• An impressively long list of sold homes every year
• Exceptional experience in your local market

A true pro won’t shy away from tough questions. They’ll be a mover and a shaker, ready to fight for your best interests as you’re searching for the right house and negotiating the terms of the contract. As a home buyer, working with a rock-star agent is one of the biggest advantages you can give yourself!

Step 4: Go House Hunting

After you’ve been preapproved for a mortgage, you’re ready for the fun part: finding your perfect home!

Do your homework!

Once you reach this step, your finances should be rock solid so you know exactly what you can afford. And with a real estate agent to guide you through the process, you have a winning combo for buying a home with confidence!

Before you dive into the home search, create a must-have list of home features. If you’re buying a home with your spouse, make separate lists and compare. Once you have clarity on the features you both want, share them with your real estate agent and use those criteria as the foundation of your home search.

Your agent will be able to help you set realistic expectations and target your search to areas you can afford.

How can you know you’re making a good investment?

When you’re looking for the perfect home, it may be hard to imagine that you’ll ever sell it. But just remember, even if you think it’s your forever home, you should shop with resale value in mind. Here are some home-buying tips to help you make a smart investment:

• • Don’t compromise on location or layout. Those are two things you can’t change about the home you buy. No amount of curb appeal can make up for a truly terrible floorplan. And buying a great house in a not-so-great neighborhood is a bad plan. If you don’t love the location or layout, chances are potential buyers years from now won’t either.

 

• • Look past the surface. Don’t let a lime green bathroom keep you from an otherwise great home. Other buyers may not be able to look past those easy-to-fix details like décor and paint color, which could score you a deal. That lime green bathroom may mean more green in your pocket!

 

• • Buy the least expensive home in the best neighborhood you can afford.That gives your home’s value room to grow in the future. Keep in mind that future buyers who are shopping in a $200,000 neighborhood aren’t looking for a $300,000 home.

 

• • Pay attention to home values in that area. Are they rising or declining? Are businesses booming or closing? You can tell a lot about home values in a neighborhood by what’s happening in the community.

 

• Research the school districts. Even if you don’t have kids, school districts can be an important factor when you sell. A Brookings Institute study evaluated the top 100 metro markets in the U.S. and found that home values are an average of $205,000 higher in neighborhoods with high-scoring schools compared to low-scoring schools.

The average home buyer looks for around 10 weeks before finding the right house, according to the National Association of Realtors. Don’t sweat it if it takes you a while to find your perfect place!

Step 5: Submit an Offer and Negotiate the Contract

Once you’ve found the right home, it’s time to get serious! That means submitting an offer and signing a contract agreement with the sellers.

What’s included in your offer?

Your real estate agent will work with you to submit a solid offer. If you end up in a bidding war with other buyers, keep a cool head and put your best foot forward. Things like being preapproved with your lender and having a flexible closing date can help make your offer strong.

Your purchase agreement will include details of the real estate transaction like:

• Buyer and seller information
• Property address
• Purchase price, lender information and down payment amount
• Earnest money deposit
• Items to be left with the home (like appliances or furniture)
• Contingencies like the home inspection, appraisal and final mortgage approval
• Closing date

Sometimes agreeing on terms is quick and painless, but it can also be one of the hardest parts of the process.

If your negotiations get intense, remind yourself that both parties want the same thing. The sellers want to sell their home, and you want to buy it! Sometimes it pays to compromise on little details if that will move the process forward. A good real estate agent can give you advice about when to give in and when to hold firm.

Step 6: Get a Home Inspection, Appraisal and Final Mortgage Approval

Once you get to this step, you’ll be officially under contract on your new home! That’s something to celebrate. Being under contract also means you’re done with the most time-consuming stages of the home-buying process. Cheers to that!

But now that you’re under contract, what should you expect? Your main task now is to work through the contingencies in the contract.

Contingencies are simply conditions that must be met in order for the home purchase to take place. They provide a safety net for you to back out of a sale without losing your deposit if something goes wrong.

Even if you’re in a competitive market, don’t let your emotions lead the charge. You should never skip these contingencies, because they offer important protection for your home purchase.

Home Inspection

As a buyer, you have the right to a professional home inspection before you purchase the house, and you would be crazy not to do it! This is one of the most important precautions you can take before purchasing a home because it keeps you from being blindsided by structural issues or expensive repairs. If the inspection reveals major problems with the home, you can ask the seller to fix the problem, reduce the price, or cancel the contract.

You can also consider getting other professional evaluations, like a termite inspection or radon test, depending on the advice of your real estate agent and the age and condition of the home you’re purchasing.

Appraisal

If you’re getting a home loan, your lender will require an appraisal evaluating the value of the property. An appraisal protects you from paying more than the home’s true value. If the appraisal comes in lower than your offer price, your real estate agent can provide the best guidance for what to do next.

 

Final Mortgage Approval

The best way to pay for a home is with cash! Not only does it set you up for building wealth, it streamlines the real estate process. If you did get a mortgage, you’ll have a final step before you can close on your home: getting final approval. Your lender will dig through the details of your finances to finalize your mortgage. Whatever you do, don’t open a credit card, take on more debt, or change jobs once you’re under contract. That’s a stupid idea anyway! Plus any changes in your financial situation can jeopardize your loan process.

Step 7: Close on Your House!

You did it! All of the planning, house-hunting and waiting is over. The final step in the home-buying process is closing on your new place!

Before you get the keys for your new home and officially call it your own, you have one more sprint ahead of you: paperwork. That’s right, bring on the hand cramps!

You should receive a copy of your closing documents to review ahead of time so there are no surprises on closing day. Most likely, you’ll pay for:

• Closing costs
• Prorated property tax
• Homeowner’s association fees (if this applies to your neighborhood)
• Homeowner’s insurance

If there are any confusing terms or conditions as you work through the paperwork, don’t be shy about asking questions! This is one of the biggest purchases you’ll ever make, and you should know exactly what you’re signing up for.

Once you’ve signed all the paperwork, it’s time to breathe a sigh of relief. You’re officially a homeowner. Congratulations! The home-buying process may not have been easy, but having a beautiful new home to call your own is worth it in the end.

Learn More About How to Buy a House

This is a lot of information. And guess what? There’s even more to learn! If you’re feeling overwhelmed, don’t worry. You don’t have to do all of this on your own. With our Endorsed Local Providers (ELPs), you can be confident that you are working with a real estate agent who is an expert in your local market.

We only endorse trustworthy real estate agents who are well-respected in their communities. Each ELP sells at least 35 homes a year, and they are world-class pros with expert negotiation skills to help you secure the home you love!

Don’t make your biggest investment without the guidance of a professional. Buying a house can be stressful, but a high-octane real estate ELP will walk you through the home-buying process to help you make a smart investment that fits your needs and your budget.

 

 

Taken from Dave Ramsey website.