New Maryland bill to limit cost of condo resale package

Maryland law requires the seller to provide specific information pertaining to the resale of property within a Homeowner’s Association (HOA) or a property designated under a condominium regime.

Typically, this information is produced by the management for the HOA or condominium, and the HOA or condominium charges the seller a fee for the production and delivery of the information.

It is the belief of some Maryland legislators that the fees being charged are excessive and, as such, these legislators are seeking to limit the amount that may be charged.

Before the Maryland legislature are bills S229/HB412, which would limit the fee a condominium council of unit owners or HOA may charge an owner (seller) for providing this legally required information to a prospective homebuyer.

The current law calls for a "reasonable fee," but it is left undefined so many organizations have simply been using the requirement as a way to profit – charging upwards of $400 to $500.

There's currently a proposal to limit the fee to $50. Hearings on the legislation continue and we will keep you apprised of the final bill.

UPDATE: The Senate passed SB 229.  They amended HOA’s out of the bill, thus making it applicable only to Condo Associations; and they upped the fee that could be charged from $50 to $100.  The House Committee then amended the bill further, but the Senate committee refused to concur with those amendments and so the bill died when the clock ran out at midnight.

Scheduling a settlement date is a contractual obligation for homebuyers

An often overlooked provision in paragraph #6 of the GCAAR Regional Sales Contract provides that the "Purchaser agrees to contact the Settlement Agent within 10 Days after the Date of Ratification to schedule Settlement and to arrange for ordering the title exam and, if required, a survey."

Homebuyers and their agents should pay particular attention to this requirement.

Recently our office was notified that a seller had declared the purchaser in breach of contract due to purchaser's failure to schedule settlement within 10 days from the date of ratification.

While the purchaser had ordered a title exam with our office, neither he nor his agent had scheduled the settlement date.

Through email notification, Federal Title reminds homebuyers and their agents to schedule the closing with our office within this time period. Unfortunately, in this particular instance, our notifications were ignored.

Post settlement occupancy agreements: A useful tool, but beware of potential pitfalls

A post settlement occupancy agreement allows a seller to continue to live in his home after settlement, under an arrangement where the seller is essentially renting the home back from the new purchaser.

This type of arrangement can be a life-saver for a seller who is purchasing another home but won’t be able to close on that purchase until a few days or weeks after he sells his current home. Joe wrote a very informative blog post about post settlement occupancy agreements and how they can be a solution to settlement timing issues. 

I thought I would take a look at things from a different perspective and point out some potential pitfalls of such arrangements. In order to be protected, both purchasers and sellers need to prepare for the worst.

What do I mean by the worst? Imagine a case where a seller who is renting back catches the house on fire, and the house burns down to the ground. There are a lot of tricky issues in such a situation.

One thing we know for sure is that the purchaser now has no home to move into, which is obviously a problem, no matter how the liability issues get resolved.

In the normal case of a house fire, there is a homeowner’s insurance policy that would provide coverage. Here, presumably the purchaser obtained a homeowner’s policy with an effective date of the date of the settlement.

The GCAAR standard post settlement occupancy form states: "From the date of settlement the Buyer shall obtain and maintain insurance on the Property with the Buyer’s policy being primary in the event of other available insurance." (Form #1309, paragraph 6.)

The trouble is that despite this provision, the purchaser’s insurance company might have a different opinion.

For example, it is possible that the purchaser’s insurance would not cover the fire, under an exclusion based on the fact that the policy holder was not living in the property at the time of the fire?

Even if the purchaser thought ahead and got coverage for someone renting property, the typical post settlement occupancy agreement will say that the arrangement is not a landlord/tenant relationship, which might cause complications for insurance coverage.
For example, the GCAAR form states, "Nothing in this Agreement shall constitute a Landlord/Tenant relationship between Buyer and Seller." (Form #1309, paragraph 8.)

It also may be that the seller continued his/her homeowner’s policy through the rent-back period, but it is possible that this insurance would not cover the fire damage, due to the fact that the seller no longer owned the home at the time of the fire. The seller may have also gotten renter’s insurance for the rent-back period (the GCAAR form requires it), but typically that will cover only belongings, not damage to the house itself.

Even something less extreme than a whole house burning down can pose some tricky questions in a post settlement occupancy situation.

The buyer now owns the house, along with the appliances, HVAC, etc. If the seller negligently breaks the door off of the refrigerator during the rent-back period, one would think that the seller should be held responsible, and, normally, that would be the case, at least under the GCAAR standard form, which provides for a deposit by the seller to be applied to any damages to the property caused by the seller in excess of ordinary wear and tear. (Form #1309, paragraph 2.)

But what if the refrigerator simply stops working 2 weeks after the closing, during the rent-back period? Whose responsibility would that be?

Since the refrigerator is now the buyer’s, generally one might think the buyer would be responsible, but paragraph 3 of the GCAAR form provides that the seller is to deliver the property (i.e., deliver it at the end of the rent-back period) in the condition specified in the sales contract. The sales contract provides that the condition of the property at delivery is to be in substantially the same condition as of the date of the contract, the home inspection or some other date to be specified. If the refrigerator was working at the specified date, then the seller is responsible if it is not working at the end of the rent-back.

The bottom line is that both buyers and sellers should carefully review any post settlement occupancy agreement to see what the agreement provides concerning liability for issues that arise during the rent-back period and concerning the responsibility for obtaining insurance.

They then should make any revisions to that agreement that are necessary to protect their interests, in consultation with an attorney, if possible. They should also contact their insurance agent to discuss insurance coverage for the rent-back period.

One other thing that a buyer should do before agreeing to allow the seller to rent back after closing is to check with his lender to see whether the lender will permit it.
Typically lenders will allow a short rent back. For anything longer, the buyer could be in violation of the covenant in the loan documents that states that the property will be owner-occupied.

If the seller is paying a security deposit and/or "rent" at closing, these numbers will appear on the closing statement, which the lender needs to review and sign off on.

You don’t want the lender learning about the rent-back for the first time when they receive the draft closing statement from the title company and see those numbers.

Using Power of Attorney? Think again

Fannie Mae recently issued new restrictions on the use of power of attorney (see bulletin details). As a result, these new restrictions will apply to virtually every real estate transaction. 

One important restriction is that if you are doing a cash-out refinance, you cannot use a power of attorney. There are no exceptions to this rule.

If you are doing a non-cash-out refinance or a purchase, you will need to satisfy these key requirements in order to use a power of attorney:

1. Prior to closing, the Principal (the person not attending the closing and appointing the Attorney-in-Fact) must provide the title company and lender with a written statement detailing the reasons he or she cannot attend the closing.

2. If no borrowers will be present at closing, the Attorney-in-Fact (the person signing on behalf of the Principal) must be the Principal's relative or Attorney-at-Law. A "relative" is defined to include a fiancé, fiancée or domestic partner of the Principal.

3. If at least one borrower will be present at closing, the Attorney-in-Fact signing for the absent borrower(s) does not need to be the Principal’s relative or Attorney-at Law.  So, for example, if an unmarried couple is buying a house together, and only one of them can be present at the closing, it would be permissible for that person to be designated as the Attorney-in-Fact for the absent Principal,

4. The Attorney-in-Fact cannot be:

  • a real estate agent with a financial interest in the transaction or any person affiliated with such real estate agent;
  • a title company providing the title insurance policy or any affiliate of such title insurance company, or any employee of either such title insurance company or any such affiliate;
  • the lender to the transaction, any affiliate of the lender, any employee of the lender, the loan originator, the employer of the loan originator, or any employee of the employer of the loan originator

An exception to the above restrictions is if the real estate agent, title company employee, or lender is a relative of the borrower. (This applies in cases where use of POA is allowed, so not in the case of a cash-out refinance.)

Close It! nominated for Tabby Award

We've got exciting news to share! Our iOS app is one of three finalists for a Tabby Award in the Business Products and Services category.

Launched in May of this year, Close It! has already received more than 5,000 downloads. The app is available for iPad and iPhone (the former is the version that's in the running for this particular award).

Close It! is like Turbo Tax for real estate transactions. If you've downloaded the iOS app, you know already know how easy it is to accurately calculate your buyer's total cash to close or your seller's total cash in pocket.

If you haven't downloaded Close It! yet, what are you waiting for?! Download Close It! >>>

For those who have never heard of the Tabby Awards, it's a worldwide competition for the best iPad, Android and Windows 8 tablet apps.

At least a dozen countries are represented this year. More than 40 apps, including Close It! were selected as finalists in 18 categories.

An international panel of judges will choose the winners on November 13 in New York City.

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Our blog contains general information only, not intended to be relied upon as, nor a substitute for, specific professional advice. Rate tables and figures that appear on our blog are deemed reliable but not guaranteed. For current rates & policies, refer to our Quick Quote and Consumer Guide. We accept no responsibility for loss occasioned to any purpose acting on or refraining from action as a result of any material on our blog.