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Closing Day Surprises

July 24, 2017

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.

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How to Buy a House

July 10, 2017

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.

ROR 2006 Alabama Code – Section 6-5-253 — Payment or tender of purchase money and other lawful charges, with interest.

November 12, 2015

(a) Anyone entitled and desiring to redeem real estate under the provisions of this article must also pay or tender to the purchaser or his or her transferee the purchase price paid at the sale, with interest at the rate allowed to be charged on money judgments as set forth in Section 8-8-10 (as it is now or hereinafter may be amended), and all other lawful charges, also with interest as aforesaid; lawful charges are the following:

(1) Permanent improvements as prescribed herein.

(2) Taxes paid or assessed.

(3) All insurance premiums paid or owed by the purchaser.

(4) Any other valid lien or encumbrance paid or owned by such purchaser or his or her transferee or if the redeeming party is a judgment creditor or junior mortgagee or any transferee thereof, then all recorded judgments, recorded mortgages and recorded liens having a higher priority in existence at the time of sale which are revived under Section 6-5-248(c).

If the redemption is made from a person who at the time of redemption owned the debt for which the property was sold, the redemptioner must also pay any balance due on the debt, with interest as aforesaid thereon to date.

(5) Mortgagees of the purchaser, or their transferees, are considered transferees of the purchaser, and a party redeeming must pay all mortgages made by the purchaser or his or her transferee on the land to the extent of the purchase price.

If the purchaser’s mortgages do not exceed the amount of the purchase price, the balance must be paid to the purchaser.

(b) If the redeeming party is the debtor, mortgagor, their respective spouses, children, heirs, or devisees then, unless otherwise provided herein, the judgments, mortgages, and liens revived pursuant to 6-5-248(d) are not lawful charges as defined in subsection (a).

(c) The purchaser shall be entitled to all rents paid or accrued including oil and gas or mineral agreement rentals to the date of the redemption, and the rents must be prorated to such date. The purchaser or his or her transferee and his or her tenants shall have the right to harvest and gather the crops grown by them on the place for the year in which the redemption is made, but must pay a reasonable rent for the lands for the proportion of the current year to which such redemptioner may be entitled.

(d) Any one entitled and desiring to redeem shall be granted a credit as against the amount of money required to be paid for redemption as follows:

(1) For all timber cut or sold on the land by the purchaser or his or her transferees, during the statutory period of redemption.

(2) For any oil and gas, minerals (including coal bed gas), sand, and gravel, taken from the land or sold, and for advanced royalties or bonuses received by the purchaser or his or her transferees, during the statutory period of redemption.

(3) To the extent the value of the property is diminished when any structures or buildings are changed, removed, demolished, or destroyed by the purchaser or his or her transferees during the statutory period of redemption.

(Acts 1988, No. 88-441, p. 647, §7; Acts 1989, No. 89-525, p. 1074, §1.)

Disclaimer: These codes may not be the most recent version. Alabama may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.

ROR 2006 Alabama Code – Section 6-5-248 — Who may redeem; priorities.

November 12, 2015

(a) Where real estate, or any interest therein, is sold the same may be redeemed by:

(1) Any debtor, including any surety or guarantor.

(2) Any mortgagor, even if such mortgagor is not personally liable for payment of a debt.

(3) Any junior mortgagee, or its transferee.

(4) Judgment creditor, or its transferee.

(5) Any transferee of the interests of the debtor or mortgagor, either before or after the sale. A transfer of any kind made by the debtor or mortgagor will accomplish a transfer of the interests of that party.

(6) The respective spouses of all debtors, mortgagors, or transferees of any interest of the debtor or mortgagor, who are spouses on the day of the execution, judgment, or foreclosure sale.

(7) Children, heirs, or devisees of any debtor or mortgagor.

(b) All persons named or enumerated in subdivisions (a)(1) through (a)(7) may exercise the right of redemption granted by this article within one year from the date of the sale.

(c) When any judgment creditor or junior mortgagee or any transferee of a judgment creditor or a junior mortgagee redeems under this article, all recorded judgments, recorded mortgages and recorded liens having a higher recorded priority in existence at the time of the sale are revived against the real estate redeemed and against the redeeming party and such shall become lawful charges pursuant to Section 6-5-253(a)(4) to be paid off at redemption.

Once any lienholder, recorded judgment creditor, or junior mortgagee is paid the amount of such person’s debt and any accrued interest and other contractual charges, such person has no further right to redeem.

Any lienholder, recorded judgment creditor, or junior mortgagee with a lower recorded priority may redeem from those having a higher recorded priority who have redeemed.

(d) When any debtor, mortgagor, their transferees, their respective spouses, children, heirs, or devisees redeem, all recorded judgments, recorded mortgages, and recorded liens in existence at the time of the sale, are revived against the real estate redeemed and against the redeeming party and further redemption by some party other than the mortgagor or debtor under this article is precluded.

(e) When any debtor or mortgagor conveys his interest in property subject to a mortgage prior to sale wherein they are released from liability for the debt, his right of redemption under this article is terminated. In the same manner, the right of redemption granted under this article to the spouses, children, heirs, or devisees of debtors or mortgagors terminates when the debtors or mortgagors have conveyed their interests in the property and are released from liability for the debt.

However, where debtors or mortgagors have conveyed their interests in the property but remain liable on the debt and are debtors at the date of the foreclosure sale, the debtors and mortgagors retain their right of redemption under this article and in the same manner, their spouses, children, heirs or devisees continue to be entitled to the right of redemption under this article.

(f) A redemption made by any person under this article, other than the debtors or mortgagors, and their respective spouses, children, heirs, or devisees, shall preclude any further redemption by such person.

(g) Subject to subsection (e), a mortgagor and debtor have priority over any other redeeming party and a mortgagor has priority over a debtor.

(Acts 1988, No. 88-441, p. 647, §2.)

Disclaimer: These codes may not be the most recent version. Alabama may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.

Foreclosure in Alabama: The Right of Redemption (ROR)

November 12, 2015

As foreclosures have been a concern for many in this economic climate, it is important to know Alabama law provides significant protection for foreclosed homeowners through the right of redemption. Redemption is a personal right created by statute that allows former homeowners, junior lien holders, spouses and children of former homeowners, and others with an interest in a property, to reclaim their interest for one year after the date of the foreclosure sale

Click the link for a copy of those allowed to redeem under Alabama law:http://law.justia.com/alabama/codes/3069/6-5-248.html

The right of redemption expires after one year. Generally, the price paid by the redeeming party is the price of the property bid at the foreclosure plus those other charges allowed by statute. The redeeming party may also have to pay interest at a rate of 12% on those amounts paid by the current owner of the property towards the upkeep and maintenance of the property.

A listing of the allowable charges is shown here: http://law.justia.com/alabama/codes/3069/6-5-253.html

A right of redemption is generally not created when the sale of the property is to a third party by the party who purchased at a foreclosure sale. If you do purchase a property that has been foreclosed in the past year, it is important that a title commitment is reviewed prior to purchasing the property. Redemptions are uncommon but do occur. Often, the redeeming party has been able to obtain the money required to purchase the property through alternative forms of financing (borrowing from family, winning the lottery, etc.).

A good rule of thumb is to purchase a foreclosed property at a price less than what it sold for at a foreclosure sale. While this may seem elementary, many don’t check the foreclosure sale price prior to purchase.

Among the reasons for doing so are:

1. Foreclosed properties are often in a poor state and in need of repairs

2. If your purchase price is more than the price bid at the foreclosure sale, you may be required to purchase a redemption bond, adding a significant amount to your settlement costs at closing. This is because a redemption bond is intended to protect the new homeowner in the event the purchaser is reimbursed by the redeeming party by an amount less than what he paid;

3. If an authorized party wishes to exercise their right to foreclosure, you want to make sure you get a good return on your investment.

If you are a former homeowner that has been foreclosed on, remember these rules:

1. Take pictures of every part of the property prior to leaving. This will enable you to rebut any additional costs claimed for permanent improvements to the property

2. Get out within 10 days of receiving written demand for possession by the foreclosing party. This is usually standard operating procedure for foreclosures. Failure to comply results in a forfeiture of your right of redemption.

written by Yellowhammer Insurance, Inc.

Alabama Right of Redemption (ROR)

November 12, 2015

In Alabama, there is a right of redemption for one year after a foreclosure. The right of redemption is the right to purchase the property from the current owner, even if that person does NOT want to sell the property. Because people are getting SO MUCH bad advice on this topic, I decided to help clarify things on one point: How much does it cost to redeem?

Many different categories people have the right of redemption. That list is outside the scope of this post.

You can lose your right of redemption if you don’t comply with the Ten Day Notice to Vacate. That topic is too complicated for this post.

After a lender foreclosure, if the former owner wants to redeem, they must pay the following charges, all at 12% interest:

1. Amount bid on the courthouse steps; plus

2. Insurance premiums paid or owed in the meantime; plus

3. Ad valorem taxes paid or owed in the meantime; plus

4. Any other debt owed to the current owner of the property; plus

5. The value of permanent improvements.

a. Case authority in the early 20th century involved fights over whether “repairs” counted as “permanent improvements.” The courts said permanent improvements include anything done to improve the property, anything erected on the property, anything added to the property, AND any repairs to the property.

b. In a recent Alabama Supreme Court case, the property foreclosed was a warehouse. The purchaser completed revamped the property and turned it into a manufacturing facility. The value of those permanent improvements was a very large $$ amount. When the former owner tried to redeem, he said they didn’t count as permanent improvements because they didn’t “improve” the property, they completely changed the nature of the property. Alabama Supreme Court said, “too bad,” they are improvement and they are permanent, they qualify.

c. There have been some court battles over “value” vs. “cost.” The courts are clear, it is the VALUE, not the cost. If you spend $1,000 and increase the value $50,000, you get the $50,000. If you spend $100,000 and increase the value only $25,000, you get only $25,000.

d. The value of improvements is determined as follows:

i. The redeeming party sends a letter to the current owner stating his/her intention to redeem and asking for a statement of all lawful charges.

ii. The current owner has 10 days to respond with a statement of “all lawful charges” including the value of permanent improvements.

iii. If the current owner fails to respond within 10 days, they lose their right to demand the value of the permanent improvements.

iv. If the current owner responds in 10 days and places a value on the improvements, the former owner has 10 days to accept that number or contest it. If he/she contests it, the former owner has 10 days to appoint a referee and notify the current owner. If the former owner misses his deadline, he loses the right to contest the value of the permanent improvements.

v. The current owner then has ten days from receipt of the notice about the referee to appoint his OWN referee. If he misses this deadline, he loses the right to claim the value of the improvements.

vi. The two referees meet and try to come up with a value. The referees can be anybody. They don’t have to be appraisers or real estate agents.

vii. If the two referees cannot agree, they (the referees) appoint an umpire. Whatever value has two votes to support it wins, and that is the value.

viii. If someone disagrees at that point, they can hire lawyers and go to court.

6. If the property is redeemed, the current owner gets to keep all rents earned up until the former owner “tenders” or offers to redeem.

7. If the property is redeemed, the current owner must give the former owner a credit for the value all minerals taken from the property and the value of all timber cut.

8. You can’t demolish structures during a right of redemption period. No matter how ugly you might think they are, that doesn’t count as a “permanent improvement.”

9. If the property is redeemed by the former owner, all liens that used to be on the property when he/she owned it, reattach after redemption (except, of course, the mortgage that caused the foreclosure.)

10. If the property is redeemed by a junior lien holder, all liens that used to be on the property before foreclosure AND that were superior to that junior lien holder reattach, except the mortgage that caused the foreclosure. In other words, Regions has a 1st mortgage, WAMU has a 2nd mortgage, IRS has a tax lien that is 3rd, Community Hospital has a judgment lien that is 4th and Bob’s Plumbers has a judgment lien that is 5th. If someone buys the Community Hospital judgment lien and then redeems, the WAMU mortgage and the IRS will lien come back on the property, but Bob’s Plumbers will not.

I hope this helps you. This is a complicated area of the law, and this blog is not intended as legal advice. There are SO many other little things that might change the above rules, you should always ask a lawyer for advice before making any decisions or taking any action. Written by Denise L. Evans

Fannie Mae Replaces HomePath Mortgage with Financing Flexibilities

November 5, 2015

As of October 7, 2014, the HomePath loan program is no more, folks.  Fannie Mae made the announcement in July along with its requirements for meeting the programs deadlines:

“On October 7, 2014, Fannie Mae will remove the HomePath Mortgage and HomePath Renovation Mortgage logos from properties listed on HomePath.com, and Fannie Mae REO properties will no longer be listed as eligible for HomePath Mortgage/HomePath Renovation Mortgage financing. We are making corresponding changes to the requirements applicable to delivery of HomePath and HomePath Renovation Mortgages under the subject Variance. The Variance will be modified to reflect the following requirements for delivery of HomePath and HomePath Renovation Mortgages on or after October 7, 2014:

(a) The lender must have an executed purchase contract for the sale of the related property that is dated on or before October 6, 2014;

(b) The lender must document the loan file with a copy of the property’s “Listing Details” page printed fromhttp://www.homepath.com on or before October 6, 2014, showing the HomePath Mortgage and/or HomePath Renovation Mortgage logo, indicating the property’s eligibility for HomePath Mortgage and/or HomePath

Renovation Mortgage financing. The Real Estate Purchase Addendum reflecting the selection of HomePath Mortgage or HomePath Renovation Mortgage financing may be used as a substitute for the printed “Listing Details” page showing the logo, if it is dated on/or before October 6, 2014; and

(c) HomePath Mortgage/HomePath Renovation Mortgages meeting the above requirements that are sold as whole loans must be purchased by Fannie Mae on or before March 31, 2015 and loans delivered for MBS must be in pools with issue dates on or before March 1, 2015(this impacts lenders only).”

The letter also explained, “Fannie Mae will update the Selling Guide at a later date to offer some flexibility for financing the purchase of Fannie Mae REO properties.”

At First Home Mortgage, we are removing the product as of tomorrow, Friday, September 12th.  Any loans in progress must be locked in by tomorrow, and we will not take any new HomePath applications.  If you are counting on HomePath financing for a home in the next couple of weeks, touch base with your lender to make sure the proper steps are being taken to meet the above criteria.

New “Financing Flexibilities” to Replace the HomePath Mortgage

Even though the HomePath mortgage program is being retired, Fannie Mae will still be offering some of its features to borrowers purchasing Fannie Mae REO (foreclosure) properties.  Below is an overview of the “Financing Flexibilities” announced on their fact sheet:

  1. Interested Party Contributions (IPCs): For principal residences with LTV/CLTVs greater than 90%,
    Fannie Mae allows up to 6% interested party contributions (rather than the 3% standard per the Selling
    Guide).
  2. Multiple Financed Properties: For borrowers owning 5–10 financed properties, a maximum
    LTV/CLTV ratio of 75% for 2-4 unit investment properties is permitted (rather than the standard 70%
    per the Selling Guide) on fixed rate mortgage transactions only. LTV/CLTV ratio limits for ARM
    transactions and High Balance Loans are per the Selling Guide. All other eligibility requirements for
    borrowers with Multiple Financed Properties continue to apply.
  3. Resale Restrictions: In the event the mortgaged property is subject to any resale restriction imposed
    by Fannie Mae as the property seller, the mortgage is eligible for sale to Fannie Mae, notwithstanding
    any Selling Guide restrictions on properties subject to resale restrictions. by WHITNEY WATSON