Make the most of your home investment
BY CHARLES SCUTT
CTW Features Whether it be “Dr.,”“Sir,” or “Mrs.,” one’s title says a lot about the person. But when it comes to real estate matters, your “title” takes on a whole new significance – one that can mean the difference between worry-free rightful ownership and a devastating vulnerability to unforeseen forces that can lawfully lay claim to your property.Which is why obtaining title insurance is an absolute must for homebuyers, say experts. Your property’s title is a
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I’m Thinking of Cutting My Loan Term by a Few Years. What Do I Need to Know?
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Why Title Insurance is So Important to Buyers
record specifying the property’s owners and any rights related to ownership. Essentially, title insurance is an insurance policy that legally protects the purchaser and mortgage lender against a loss arising from problems caused by things like prior ownership claims, inherited estate disputes and unpaid contractors. It provides peace of mind that your home and land cannot be taken away from you due to unexpected circumstances, such as previous liens on your property, recording errors, fraud and
WITH PETER G. MILLER
Q: I’m thinking of cutting my
remaining loan term from 11 to eight years. It seems that it’s not easy to get the additional amount I have to pay for principal to do this. Can you help? Loan balance is $100,800 at 4.5 percent. Escrow is separate.
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A: Are you allowed to prepay the loan in whole or in part without penalty? If yes, then your payment coupon likely contains a space where you can pay an additional amount each month.This is the easy, no-mess way to knock years off the payment schedule. That said, you have an unusual mortgage.The lowest fixed-rate for 30-year mortgages seen in decades was about 5.2 percent in the summer of 2003. By any chance, do you have a mortgage with a low “start”or one that allows “option”payments for the first several years of the loan? If you have such financing be aware that the monthly payment can increase greatly once the initial phase ends. Before going further, speak with the lender and get more details regarding this loan. If you have fixed-rate financing at 4.5 percent then you may want to use your money to repay more expensive debt. However, if you have a loan with terms that will change, then you may want to either prepay or actually refinance, depending on the exact loan terms. Q: Why do communities annex property? A: Money. It often happens that when communities
expand they obtain additional land, which can then be developed to increase the tax base. However, annexation also has costs.The annexing community may be required to construct improved roads,schools and other community infrastructure. In the end, however, you can bet that no community wants to annex land that simply will be a new and additional expense.
A custom maple kitchen is any homeowner’s dream, but termite infestation could that dream into a nightmare. Regular inspections of your home can prevent such a disaster from happening.
Protecting Your Home from the Stealthiest Invader
BY PAUL ROGERS
CTW Features im Connors and his wife Emily Benham lived in their home for 12 years never suspecting they weren’t alone.Then this spring when Connors was working in the laundry room,he noticed some ochre-colored specks – like grains of sand – on the floor and the tops of the washer and dryer. Frass – termite droppings. “We have a series of wood shelves in the laundry room. I pressed my finger into them and found channels had been dug,”
Q: We want to buy a first home this year. We have a place in mind. When you only buy things on a cash basis, what is the best loan to try for? A:The ability to buy for cash gives you significant
leverage in the marketplace because you can close quickly without going through the loan application process.That said, in addition to a professional home inspection you must still insist on the same protections See ASK OUR BROKER, Page 2
Connors says.“And I knew if termites were there, then they were somewhere else that I couldn’t actually get to.” The house was infested, and Connors and Benham needed to take action before the celluloseeating insects consumed so much that it actually needed structural repairs.The price tag: more than $1,000 to have the building fumigated.And that doesn’t include the expense, labor and hassle of removing all food and living things, spending three days at a hotel and getting everything back in order when it was finished.
If you think this couldn’t happen to you, think again.A relative of the cockroach, termites are found in every state except Alaska.The National Pest Management Association estimates termites cause $5 billion in damage to homes every year, devouring not only wood but anything containing cellulose: books, boxes, carpet backing, drywall and furniture.They’ve also been known to eat through vinyl, linoleum and wiring in search of food or water. More than 2 million homes will require treatment this year. To minimize damage and
expense, it is essential for homeowners to identify termite activity as soon as possible and take preventive measures. First, the fundamentals: there are two basic types of termites: subterranean and drywood.As the name implies, subterranean termites invade from the ground up. Drywood termites swarm seasonally, often flying into attics and eating from the roof down. Formosan termites, a particularly voracious subterranean variety found in Gulf states, live in huge colonies of 1 million or more,
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CONTINUED FROM PAGE 1 criminal activity.And it also serves as a financial safeguard, covering the cost of having to fight for your rights in court. “Research has proven that your home is usually your largest single investment,” says Rafael Castellanos, a managing partner with Expert Title Insurance Agency, LLC, New York.“Before you purchase your home, you need to be protected throughout the several prior ownership changes.Without title insurance, you risk financial ruin.Your single largest investment could be lost through no fault of your own.” Any weak link may cause a direct financial loss to you unless you have a title insurance policy to protect and legally defend your rights to ownership, says Castellanos, who adds that these weak-link worries are numerous. For example,“Someone may have forged a signature on a prior deed, someone may have been legally incompetent to give a deed, or a deed may have been given by an unauthorized corporate officer, rendering the deed void,” Castellanos says.“In addition, there may be a forged release of a prior mortgage, undisclosed but recorded prior federal or state tax liens, child support judgments, and notices of pending lawsuits.” Another nightmare scenario is an undisclosed divorce by the previous owners. One spouse may try to sell the home without informing the other.While both spouses are required to sign off on the transaction to obtain a clear title, what if one spouse’s name is forged? Your new property may get tied up in the divorce proceedings. “If someone makes a claim, title insurance offers financial protection by paying for the legal defense, attorney fees, court costs and expenses incurred in the lawsuit,” Castellanos says. “Then, the title company will either perfect the title by correcting any problems or pay the valid claim up to the amount of
the policy.” According to Gateway Title Company, Burbank, Calif., title companies typically issue two types of policies: an “owner’s policy” that insures the home buyer for as long as you and your heirs own the property, and a “lender’s policy” (mortgage title insurance) that insures the priority of the lender’s security interest over the claims others may have in the property. Both types are paid for by either the buyer or seller on the day of closing, depending on your state’s laws. During sale negotiations, a buyer can ask a seller to pay for the policy if the seller is not required by law to foot the bill. “Almost all mortgage lenders require a home buyer to obtain title insurance in an amount at least equal to the amount of the mortgage,” says James Randel, president of Rand Real Estate Services, Inc.,Westport, Conn. “Lenders require mortgage title insurance as security for their investment in your property.Title insurance assures the lender that there are no liens, judgments, or other issues clouding your title to the property or impairing their first lien on your property.” Additionally,“homeowners looking to refinance their mortgage must have a title insurance policy for their refinance loan to be approved,” says Payman Emamian, president of Premier Realty, a full-service boutique real estate agency in Los Angeles. Salvatore Strazzullo, attorney with Strazzullo Law Firm in Brooklyn, N.Y., says that buyers legally can choose to decline purchasing an owner’s policy, but he would never recommend it. Moreover, if you are using a bank to lend you the money to buy a home, the bank will require purchasing a lender’s policy, he says. One often overlooked benefit to title insurance is that it allows for mortgages to be traded, sold and invested in the secondary mortgage market with full knowledge that these mortgages are protected against title defects and claims, says Castellanos.“In the long run, this leads to lower interest rates because it signifi-
cantly lowers the lenders’ risks.” Appreciating the benefits of title insurance requires a better understanding of the title search process itself. First, prior to closing, your lawyer, real estate broker or lender will engage a title agent to conduct a search on your property’s title. Castellanos says that this search usually begins with a trip to the hall of records in your jurisdiction, which may include the county courthouse, county clerk’s office, and various local, state and federal government offices.The examination of your property and its current and former owners will cover public records of judgments, liens, real estate taxes, assessments, mortgages, covenants, restrictions, defects, pending lawsuits against your property, easements, and more – a search that can extend back over 40 years. After all the information has been gathered and compiled, a Certificate of Title or Title Commitment is issued, outlining all the defects and issues with the title.The title agent, in cooperation with your attorney and lender, will then work to clear all the defects discovered.The process is completed prior to and/or at the time of closing, eliminating any encumbrances and adverse matters before the title is transferred to you. The good news about title insurance is that, unlike homeowner’s insurance, it’s a one-time premium paid at the time of closing or refinancing, usually bundled into your total closing costs. The collective premium for an owner’s policy and lender’s policy is usually a few hundred dollars, depending on the size of your loan and the state you are purchasing in. Title insurance is obtained by the purchaser or seller through a title company of their choice, but most realtors will help with referrals to a reputable title company.
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any lender would want: a good,marketable and insurable title; a survey; an appraisal satisfactory to you; a termite inspection, etc. The ability to buy a first home for cash is unusual: According to the National Association of Realtors only 4 percent of all first-time buyers put down 50 percent or more.You are thus in the position of having a lot of cash and no experience.To protect your interests, before entering the market find an experienced buyer broker and real estate attorney with whom you can work. In considering buying for cash you have to weigh the pros and cons. If you buy for cash you have no monthly mortgage. In effect, your cash is “earning” in a low risk way what you might otherwise pay for a mortgage. However, you may want a mortgage if your cash can be used to generate better results elsewhere.This can be a riskier option. You also may want to consider a third choice:Buy with at least 20 percent down and fixed-rate financing. If rates go up your cash may earn more elsewhere plus the mortgage interest you pay is likely to be deductible. If rates go down, you can – if allowed without penalty – make regular prepayments to quickly reduce the loan balance.
Q: A nearby house was for sale and we told the
broker that we would bid $125,000. We were then told that the house was sold, although the papers were not signed. We said we would offer $135,000, which supposedly was more than any other offer. Can the higher offer be rejected?
A: Yes, a higher bid can be rejected because price is
only one element of an offer. However, was either offer you made in writing? If not, then there likely was no bid. For a real estate bid to “count” in most jurisdictions it must be in writing.The logic for this is fairly clear: I can tell a seller that I’ll pay $350,000 for their property and then make a written offer for $325,000. Or, I might make an offer for “$350,000” with all kinds of unexpected requirements and demands, with the result that the bottom line is greatly discounted.
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Peter G. Miller is a veteran real estate columnist and the author of “The Common-Sense Mortgage.” Have a question? Please write to [email protected]
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CONTINUED FROM PAGE 1 consuming up to 2 pounds of wood per day. Fortunately, while the bugs destroy from the inside out, they are not invisible.“There are quite a few clear signs of termite evidence,” says Bob Young, a division manager at Terminix International Co., Memphis,Tenn. Keep an eye out for the following: • Shelter tubes.Termites build mud tubes approximately the width of a drinking straw for shelter and travel. Look for them along cracks, around baseboards, on pipes and plumbing, and behind siding. In addition, they often appear on the foundation, extending from the ground up to the walls. • Wings. Once they fly in and decide to stay, drywood termites drop their wings, which can often be found on windowsills, near doors and heating vents, and around baseboards. • Blisters, trails, frass and specks.“They eat from the inside
out, but if they get too close to the outside, they’ll put soil over the opening to maintain the moisture inside,”Young says.“So you’ll see specks of soil.” On sheetrock you can see trails on paint because termites eat the paper below. Dark areas on wood floors or blisters on paint or wood may also be signs of termite infestation. • Hollow wood.Tap along suspected wood every few inches with a screwdriver handle. Damaged wood will sound hollow and might even collapse in extreme situations. Better than waiting for signs of termites, experts advise taking steps to minimize chances of invasion.There are two pillars of prevention: eliminating access and eliminating water. Help eliminate access by removing any wood-to-soil contact around your foundation and all wood debris, including firewood. Don’t let mulch or dirt touch your home’s siding. “Termites are blind.They have to physically bump into their food sources,”Young says. So don’t make it easy for them by
Wood damage from termites can lead to expensive structural repairs. putting up a restaurant just outside their door. To eliminate soil contact, look for construction flaws, says Young.“Subterranean termite access and consequent damage is often related to faulty home construction,” he says, including builders looking to cut corners with dirt-filled porches that put soil up against the side of the house. Other preventive measures include: • Sealing all nail holes and cracks in exposed wood (termites can enter through cracks as small as 1/32 of an inch) and using mesh screens for ventilation openings in attic or crawl
space. • Repairing any roof or plumbing leak and soon as possible. (Leaks and standing water allow termites to survive above ground in a house.) • Keeping foundation walls dry by extending downspouts and eliminating any type of improper grading that allows moisture to flow toward the house. • Getting inspected. Pest control experts not only identify hidden signs of termite infestation, they can prevent further damage before it gets so bad that you need fumigation – or new floors and walls. Terminix uses bait systems or sprays a liquid barrier around the house “like a moat around castle,” says Young.A borate treatment applied to wood pre- or post-construction not only prevents termites but also preserves the wood in general. Still, no system is permanent. Homes located in heavy termite pressure regions need constant monitoring, including yearly or quarterly inspections. Connors’ fumigation treatment came with
a one-year guarantee,“since the gas is basically just a suffocant, the termites can move in the next day,” he says. He and Benham escaped without too much additional expense, but significant infestations can easily run $2,500-$3,500 to repair, and Young has seen extreme cases as high as $200,000. Better to be safe than sorry, says Connors.“People that are going out home shopping should always look for previous termite activity and frequent inspections, even if there hasn’t been activity. And have an inspection done yourself before you buy.”
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