Can Buyer Rescind on ‘Nightmare’ House?
QUESTION: Last June we bought the best-looking house on the block, but it is proving to be a nightmare. The air conditioning didn’t work well, so we had new central air conditioning installed. The dealer said we needed better insulation, so we had that installed; however, it didn’t help much. The plumbing makes strange noises, but three plumbers have tried and failed to correct the problem. Our neighbor is a biker whose friends drive up on their Harleys at all hours of the night keeping us awake. The neighbor on the other side has two loud-barking dogs that bark at the bikers. A friend who works at the county government center researched the title to our house and discovered it has had five owners in the last seven years. Apparently we aren’t the only owners who don’t like this house. Can we get our money back from the seller, who surely must have known of the problems but didn’t tell us? Is it a problem we bought “as is” because the realty agent insisted?
ANSWER: In most states, home sellers must now disclose to buyers any defects in the house. But I’m not certain the defects you list qualify, except possibly for the weak air conditioning. Perhaps the seller didn’t notice. The plumbing noises fit in the same category. As for the neighboring loud bikers and barking dogs, they are not defects in the house but are certainly nuisances. Taken together, however, all these problems indicate a troublesome house, as exemplified by the many recent owners.
The legal remedies for a defective residence are either (1) rescission of the sale or (2) monetary damages. Your first legal hurdle is to prove the house was defective and the seller or realty agent knew. The second legal hurdle is to overcome your problem of buying the house “as is,” which doesn’t require the seller to pay for any repairs.
An “as is” sale means the seller must disclose known defects but is not liable for any repairs. Please consult a real estate attorney for more details. Rather than suing the seller, since you dislike the house so much perhaps you will become the sixth seller in seven years.
How to Get Rid of Your PMI Payment
Q: How can we get rid of our PMI (private mortgage insurance) on our home? Last year we added a third bedroom and second bathroom to our house, dropping the loan-to-value ratio to about 70%. But the loan company refuses to cancel our $56 per month PMI. What can we do?
A: It is the policy of Fannie Mae and Freddie Mac to allow borrowers to drop PMI upon request when the loan-to-value ratio on their mortgages falls below 80%. Most other lenders follow the same policy. Some states have laws specifying when PMI must be dropped by lenders.
Contact your lender and ask for their procedure to drop the PMI. You will be expected to pay for a professional appraisal, but the cost, around $300, should be worth the expense. But be sure to hire an appraiser on the lender’s approved list.
Argument in Favor of Prepaying Mortgage
Q: Several months ago, you advised not to use a lump sum to prepay a mortgage to save interest. I disagree. Prepaying a home mortgage will save thousands of interest dollars. I calculated that by adding just $62 to my monthly mortgage payment, I will pay off my home loan in about 17 years instead of 30 years and will save around $28,000 interest. Don’t you think you should correct your advice?
A: No. The letter to which you referred involved a lump sum mortgage prepayment of about $60,000, which was not enough to pay off the mortgage. Such a prepayment will not reduce the monthly mortgage payment, nor can the borrower re-borrow that money in the future without refinancing the entire mortgage. However, it will save interest by cutting the number of years of payments.
We agree modest, gradual mortgage prepayments, such as you suggest, are wise for saving interest and owning the home sooner. But I recommend against prepaying mortgage lump sum amounts that tie up money in the event it is needed for an emergency or investment opportunity.
What Does Future Hold for Appraisers?
Q: I have been appraising homes since 1984. When the new license requirements were imposed by the state a few years ago, I became a certified appraiser. But business is terrible now, and I am thinking of changing fields. My fellow appraisers are crying the blues too. They are dropping out of the business like flies. Do you see any future for real estate appraisers?
A: Automation is rapidly taking over appraisals. Just last week I received a mortgage solicitation letter from a lender that included the lender’s appraised value of the rental house. When I phoned the lender, the agent had a computer screen that even told him the two-story house has three bedrooms, two bathrooms and a one-car garage. All an appraiser needs to do is drive by the house to be sure it’s still there and to verify three nearby comparable home sales.
Computers are now being widely used to provide property valuation details that appraisers formerly gathered. Many mortgage lenders can now use computer-provided details about a residence and hire unlicensed appraisers to verify that information for homes worth below $250,000. As you know, appraisal fees have dropped as appraisers compete for the limited available business.
