Buying Real Estate? Buyer Beware

The purchase of a home in California can be a fairly complex process as evidenced by the purchase agreement. A lengthy 8 page document before any attachments, or addendum’s are included. The standard purchase agreement developed by CAR covers most of the transactions in California and will apply most of the time on existing construction.

Make sure you read and understand your real estate contract
Make sure you read and understand your real estate contract
If you are buying into a new development chances are the builder will have their own contract that will specifically apply to that particular project. At this point you have two options, you can read it before you sign it or you can just sign it like the folks in Congress do. There is one big difference though, this is your money. Your understanding of what you are signing will go along way towards your ultimate satisfaction with your purchase.

My intent is not to explain the contract to you point by point but to alert you to some red flags that may arise due to today’s environment in the lending and real estate markets. These new situations were uncommon when the market was experiencing rapid appreciation, but due to tougher lender requirements you owe it to yourself to thoroughly investigate the property and ask questions along the way.

It doesn’t matter whether you are buying a condo, townhome or single family residence, the contract the offer is made on is the same. With a single family house you may spend more time and money on physical inspections and the appropriate professionals so that you have an idea of the possible remaining life or potential repair expense.

With a condo or townhome the physical inspection is just as important however you are going to receive a lot more reports and disclosures on how the units are governed and managed. You should also receive financial statements that indicate the condition of the budget, minutes of the homeowners meetings which would include anticipated or upcoming expenditures that may not have been planned. These may be covered by special assessments which are incremental to your monthly dues.

In addition to what you receive your lender will usually require a special document that will have to be completed by the homeowner association or management company that oversees that particular project. This document may ask suck information as the number of units that are non owner occupied as well as the number of units that are delinquent in their monthly dues.

First of all, as a buyer you typically have a 17 day contingency period (which is negotiable). You may have satisfied all of your lender requests and provided all of the documentation that your lender needs to process and approve your loan. The appraisal may have been completed and everything seems in order. However there is a potential red flag out there which you need to be aware of.

Beware the Red Flag

Before you sign off on your contingencies and potentially put your deposit at risk, ask your lender if they have received the homeowner certification. If not, you may want to discuss your options with your agent. Due to the economic situation we are in, some associations are finding that they have an unusually high number of delinquent dues. Why is this important? If you sign off on your contingencies and then find out a week before closing that your lender has just received a statement showing an unacceptable level of uncollected HOA fees, your loan may be in jeopardy. There are Fannie Mae underwriting guidelines that lenders adhere to which state the number of allowable units past due.

You definitely don’t want to assume your loan is on tract only to be derailed at the last minute.