Sellers Should Honor Contract With Fine Print They Failed to Read

QUESTION: We listed our home for sale with an excellent real estate agent who put our home into the local multiple listing system. While our agent was on vacation, an agent from another brokerage office obtained an offer to buy our house. It was a full price, all-cash offer so we were very pleased.

I guess we were a little excited and we didn’t read the fine print in the offer. It says we, the sellers, are to pay the buyer’s closing costs, including loan fee. When our agent got back from vacation she was livid with rage at the other agent who failed to explain to us that the closing costs, in addition to the sales commission, will be about $6,500, which we weren’t expecting to pay. Must we honor this contract we didn’t fully understand?

ANSWER: If it had been a mutual mistake by both parties to the contract, contract law would allow you to rescind the agreement. However, it appears this was a unilateral mistake by just you and not by the buyer. Under contract law, a unilateral mistake is usually not grounds to cancel a contract unless the other party knew or should have known about the mistake.

Although most real estate agents go over the details of a sales contract with the sellers and buyers, it is not a requirement that every detail be explained. If your agent had been present, she surely would have pointed out the unusual clause asking you to pay all the buyer’s closing costs.

But considering that you will be selling your home for the full asking price and will receive all-cash without having to carry back any mortgage financing for the buyer, if I were in your situation, I would go ahead with the sale.

If you try to back out, the buyer might sue you for specific performance of the sales contract and tie up your home by recording a lis pendens, (which means anyone buying the home takes it subject to the litigation results) to effectively prevent you from selling it. Next time, read the fine print before signing a contract.

Why Co-op Apartment Is Difficult to Sell

Q: I recently inherited a cooperative apartment in San Francisco from my late aunt. I talked with several realty agents there and they tell me it can be very difficult to sell a cooperative apartment, except at a much lower price than a comparable condominium.

These agents tell me it is virtually impossible to finance a co-op apartment sale unless I am willing to help finance it for the buyer because few banks will make loans on co-ops. If this is true, what should I do?

A: The real estate agents gave you accurate information about cooperative apartments. Because of the lack of financing, except in New York City and a few other areas with large numbers of co-ops, many cooperatives have converted into condominiums which can be financed with mortgages like single-family houses. To sell your co-op you will probably have to finance the buyer’s purchase.

Most cooperatives have one large mortgage on the entire building. As the mortgage gets paid down, each owner’s equity grows. The larger the equity, the more difficult it can be to sell a co-op apartment because few prospective buyers have enough cash to buy out the seller’s entire equity. Since most banks and S&Ls; won’t loan on co-ops, the most practical alternative is for the seller to finance the sale, secured by the co-op stock.

Another major drawback of co-ops is prospective buyers must be approved by the board of directors. They can be very difficult and need not give any reason for rejecting an applicant. Perhaps you recall a few years ago ex-President Nixon was rejected when he applied to buy a New York City co-op.

Potential Pitfalls of a Land Contract

Q: Nineteen years ago we signed a land contract to buy our home and have been faithfully making monthly payments to the bank which collects the payments for the seller. Since we only have a few payments left, I stopped by the bank to check on the exact balance owed and to find out how we will get the deed to our house.

The collection officer said our monthly payments have been deposited to a seller’s savings account at the bank. He said the bank does not know the whereabouts of our seller since her mail from the bank has been returned for the last four years and there haven’t been any withdrawals from the savings account in over six years. How will we get the deed to our home when we make our final payment?

A: Your situation is not unusual. Many property buyers faithfully make their land contract payments, only to learn the seller is unable to deliver marketable title.

For readers not familiar with land contracts, they also are called contracts for deed, contracts of sale, agreements for deed, installment land sale contracts and various other names in different states.

The idea is the seller retains the title until the buyer makes all or an agreed number of payments. This method is often used when the buyer has little or no cash for a down payment.

After you make your final land contract payment, if the bank which has been collecting the payments is still unable to locate the seller, your legal alternative is to bring a quiet-title lawsuit.

The seller can be served by publication of a notice in a local legal newspaper. At the hearing the court can order title quieted in your name and the court will issue a deed to you. Please consult a real estate attorney for details.

What Costs Can Home Seller Anticipate?

Q: We are selling our home without a real estate agent to a relative. Our attorney will be handling the closing. Please give us a list of the sales costs we can expect.

A: The major closing costs you may encounter include mortgage loan payoff (unless the buyer assumes your existing mortgage), mortgage prepayment penalty, legal or escrow fees. (By custom, in some communities these costs are split between buyer and seller or paid by the buyer. Who pays these charges is negotiable.)

Also, transfer tax, property tax and utility pro-rations, loan points if the buyer is getting a new VA mortgage, title insurance fee (customarily paid by the buyer in some areas) and miscellaneous charges, such as recording fee and document preparation fee. To avoid surprises, a few days before the scheduled closing date, ask for an itemized list of the charges you will be expected to pay.

Why Does Board Make It Hard to Find Agent?

Q: I am preparing to put my house on the market and want three agents, as you often suggest. Since I don’t know any agents here, I called the local Board of Realtors to get the names of their three most successful sales agents. The nasty lady who answered the phone said that is confidential information.

Then I asked for the names of the three largest local brokerages and again she refused to give me this information. Since realtors don’t have the best reputation to begin with, why does their organization go out of their way to be uncooperative with home sellers?

A: The answer you received from your local Board of Realtors, unfortunately, is typical of most local boards. You were wise to want to interview the most successful agents in your community, but it is a shame the local board was so uncooperative.

Such information is not confidential and there is no reason you should not have been given the names of the top agents. If you watch the newspaper, you will often find the top agents honored for their sales success, so there is no reason not to give that information to prospective home sellers.

I fully agree sometimes the realtors are their own worst enemies. For an industry that depends on favorable public relations, refusal to answer reasonable requests from consumers does far more harm than good.

Reader Says Cancel Property Tax Impound

Q: For 12 years I had been paying one-twelfth of my property taxes each month into an impound escrow account held by my lender. Last year my loan servicing was transferred to an out-of-state lender who said I was short by about $600 in my escrow impound account.

But I figured my monthly payment was about right. I got into a big hassle with the lender over the correct amount to be paid each month. Then I got out my loan papers and found out there was no requirement for me to have an impound escrow account, so I canceled it.

The lender tried to tell me I couldn’t cancel, but when I pointed out the mortgage doesn’t require it they reluctantly sent me a check for the balance in my impound escrow account. Perhaps other readers who are having similar loan service hassles can use this technique.

A: Lenders often try to over-collect on property tax and insurance impounds because then the lenders have the cost-free use of that money until the payments must be made to the tax collector and insurance agent. The only loans which usually require escrow impounds are VA, FHA and PMI (private mortgage insurance) loans. Most other conventional loan borrowers are not required to have escrow impounds, but many have them for convenience.

Rent Value Formula No Longer Applies

Q: We are moving away for about two years and plan to rent our home to tenants while we are gone. A friend told me we should ask for monthly rent about 1% of our home’s market value. We estimate our home is worth around $175,000. But $1,750 monthly rent seems pretty high. Is there a formula for home rentals?

A: The formula used to be that single-family houses should rent for 1% per month of their fair market value. However, this formula is outdated because in most towns it is not possible to get that much rent for all except the lowest-priced homes.

A better alternative is to check the newspaper classified ads of houses for rent in your neighborhood. Phone a few advertisers to learn if the features of their homes are comparable to yours. You will soon have a feel for how much rent you can get for your home.

Earnest Money Shows Buyer Is Serious

Q: I went to a real estate lecture about buying a home. The speaker, an attorney, said it really isn’t necessary to make a large earnest money deposit to buy a home. He said all that is necessary is for the buyer and seller to sign the sales contract. I recall when we sold our home many years ago the buyers made a $500 earnest money deposit. Has this custom changed?

A: No. But the attorney is correct. Legally, no earnest money deposit is required to form a binding real estate sales contract. All that is needed for consideration are the signatures of the buyer and seller on the sales contract. Those signatures obligate both parties to perform the sales contract.

However, in the real world, very few home sellers will accept a buyer’s purchase offer without an earnest money deposit. The larger the earnest money deposit, the less chance the buyer will default and not complete the home purchase as agreed. If the buyer isn’t willing to put up an earnest money deposit, that buyer probably isn’t serious.

Charity Can Provide Housing for Donor

Q: A friend told me she recently gave her home to a charity in return for a monthly payment as long as she lives. She can continue living in her home too. Does this sound like a good deal?

A: Many colleges, churches and other charitable groups such as the Salvation Army welcome real estate donations in return for lifetime income paid to the donor. The monthly payment depends on the property’s appraised market value and the life expectancy of the donor.

Although many charities have lifetime annuity plans, most prefer cash donations. Only a few accept property donations and allow the donor to retain a life estate in the property. If such an arrangement meets the donors needs, it is probably a “good deal.”

Unrecorded Deed May Be Perfectly Valid

Q: Recently my husband died. He handled all our financial affairs. When I went to our safe deposit box to see what was in it I found the deed to our home. The attorney says it has never been recorded.

We bought the house about 14 years ago. I don’t understand how this could have happened. We bought the house from a friend who carried the mortgage. The friend died a few years ago and we make the mortgage payments to his daughter. Do you think this deed is good?

A: An unrecorded deed may be perfectly valid. Although recording gives constructive notice of the document’s contents, an unrecorded deed is effective between the grantor and the grantee. Your attorney should be able to advise you how to have the title status checked and how to obtain title insurance, which would be a very good idea.

Letters and comments to Robert J. Bruss, a San Francisco-area lawyer, author and real estate broker, may be sent him at P.O. Box 280038, San Francisco 94128.