Connecticut Real Estate Attorney Law Blog

Connecticut has historically been an "attorney" state meaning that attorneys are the ones performing real estate closings.  Once upon a time this was all closings, purchase, sale and refinance.  It is still true for purchase and sale, but for refinance in many cases the attorney has been replaced by a "title company."  This is sometimes the actual title insurance company, i.e. First American or Chicago Title or one of the other national title insurance companies, and it is sometimes a title company that in fact is an "escrow agent" or "title agency" or "settlement agent" from out of state.  In many states, it is very common for title insurance companies or title companies to perform all closings.  As the lending and real estate businesses have become much more national than local, especially with the advent of the internet, many lenders have shifted their borrowers into these title companies rather than attorneys.

Why?  Ostensibly it is cheaper for the consumer, my experience has been that the issue is one of control rather than cost.  By selecting the settlement agent, the lender can move the process along more quickly and make sure that the borrower does not lose interest or get sidetracked before the deal closes.  It has been my personal experience that (at least speaking of my fees)  that attorneys typically charge no more than these title companies.  If I were borrowing $200,000 I would want to know that the loan was closed properly and that if I had questions there is a local, licensed professional to seek out.  Many times with real estate closings the mistakes only come to light years later, and by then who knows where the title company referred by the lender has gone to?

If you want to know how much I will charge for doing a real estate closing in Connecticut, purchase, sale or refinance, you can use the simple form on my website http://www.attybegemann.com/Get_a_Quote.html and I will promptly email you back a personalized quote for your transaction (or ask additional questions if needed).  The quote will include the applicable title insurance premium if the requested information is provided.

Almost every Connecticut real estate closing involves getting an appraisal done on the house being purchased or refinanced.  The appraisal is ordered by the lender, but paid for by the borrower as a closing costs.  A basic understanding fo the appraisal process is very important if you are selling, buying or refinancing a piece of reale state in Connecticut,  The appraisers are licensed by the State of Connecticut and have to pass licensing and continuing education requirements.  However the reality is that appraisals are very subjective, more "art" than "science."  Different appraisers will come out with different appraised values for the same property.  They may use different "comps" or comparable houses they use to determine the value of the subject house, or they may apply different "adjustments" for variations such as lot size, house size, number of rooms, etc.

There is an excellent article in the New York Times that discusses appraisals and variations among them.  Appraisals are often reviewed internally by the lender, who may choose to adjust the results of the appraisal.  More frequently than in the past, the appraisers are not local to the property they are appraising.  Even in a small state like Connecticut, t here are huge variations in property values between adjacent towns or even within towns, between different neighborhoods.

Here is a quote from the article about one person's experience when refinancing. "The first appraisal in February was what he called an “absurdly low number even knowing the impact of the past few years,” so he asked the bank to send out another appraiser. That came in only slightly higher and left him unable to refinance. So he waited until this summer, when the flowers were blooming, and he and his wife walked the appraiser around the property. And that one? “It came in 50 percent higher than the previous ones,” he said. "

Here is a link to the article. 

http://www.nytimes.com/2011/09/17/your-money/decoding-the-wide-variations-in-house-appraisals.html?pagewanted=1&sq=real%20estate%20appraisal&st=cse&scp=1

Overview of the Real Estate Contract Process in the New Haven, Connecticut Area

If you are thinking of buying or selling a home in NEw Haven County, Connecticut, it is important to understand the contract process.

The process starts with the potential buyer of the real estate making a written offer. This offer will contain the relevant terms, such as property address, purchase price, closing date, mortgage amount, date by which to obtain mortgage, inspection terms, the date by which to accept and any other relevant terms or conditions.

In the New Haven County area, including Hamden, North Haven, Cheshire, Wallingford, Woodbridge, Orange, West Haven, Branford and other area towns, the buyer's offer is typically made using a contract form, often supplied by the real estate agent. Acceptance of the offer results in a fully binding contract. Many real estate agents use a form of contract provided by the New Haven Board of Realtors and the local Bar Association. This contract form contains all the ‘boilerplate' provisions, and the terms specific to the transaction must be added to the form. The property condition disclosure report is also included. Although the contract form does not usually contain an automatic attorney review contingency, it is a good idea to have an attorney review the contract before you sign it. Since the contract forms used in different areas and even by different brokers have different provisions, you should always have an attorney review the terms and provisions before you sign it. Remember, when you are making an offer on a contract form, and that offer is accepted, it is a binding contract and the rights and obligations of the parties will be determined by the terms contained in that contract.  More information is available on my website, Connecticut real estate attorney information.

There are certain important provisions that must be included in the contract. These include the address of the property, the names and signatures of the buyer and seller, the purchase price, deposit and closing date. These are the basic terms needed to make a binding agreement. In addition, for the protection of the buyer there must be a mortgage contingency provision which would include the amount and terms of the mortgage and the date by which the mortgage must be obtained. The buyer should also have an inspection contingency provision, which allows the buyer to have a building inspection on the premises by a certain date. There should also be a listing of any personal property included with the sale, such as appliances, draperies, etc. In addition, any special provision, such as an agreement that the seller pay part of the buyer's closing costs, would need to be included. Anything not included will not be a part of the binding contract. You should work with your real estate agent in putting the contract together, in consultation with your attorney.  I have written more information about real estate contract contingency provisions.

After the contract is signed, the buyer will perform inspections on the property. If the inspections are acceptable, the buyer will then work with the mortgage lender to get the mortgage loan approved. At this time, your attorney will obtain a title search of the property and prepare for the closing. The buyer will also need to purchase homeowner's insurance for the new home. During the entire process a buyer should keep in close contact with their real estate agent.

If you are selling or buying a property through a ‘short sale,' which is when the seller owes more on the house then they will be selling it for, it is especially important to consult an attorney before a binding purchase and sale agreement is executed. You should work with your attorney and real estate agent to address any problems that come up during the home purchasing process.

Please note that this is not legal advice. Please contact your attorney for legal advice.

According to this report http://www.dsnews.com/articles/freddie-mac-releases-new-guidelines-for-refinancing-and-underwriting-2011-01-19 Freddie Mac is issuing new underwriting guidelines for loans that close after May 1, 2011 that will among other things eliminate the "streamlined refinance" which allowed existing Freddie Mac borrowers to refinance up to 95% LTV and to roll in closing costs.  I am not sure how much this program was used, but it was one of the few out there that made sense to me.  Freddie Mac already owned a loan on a house that was in the vicinity of the same LTV or even higher, why not allow their current borrower to be able to take advantage of the lower rates?  I may be missing something here, but why not let an existing borrower refinance to a lower rate?  This is one of the many things that mystify me about lenders - you already have a paying borrower at a higher rate, why not let the borrower refinance?  The borrower will get the benefit of a lower payment, which can only increase the chances that the loan will continue to perform. 

It seems to me that if your loan is owned by Freddie Mac now is the time to refinance so you can still go up to 95% LTV.  If any mortgage brokers or loan officers know anything more about this I would appreciate their comments.

Very interesting wrinkle on short sales with IRS liens that an attorney who handles a lot of short sales  in Florida has blogged about.  For those in Connecticut doing short sales on real estate closings here, these same rules SHOULD apply (aleays hard to tell with the IRS) and the IRS liens thus should not be an obstacle to getting a short sale done. 

HUD recently announced a new refinance program for underwater borrowers.  They would be able to obtain, with their existing lender's cooperation, a refinance into an FHA loan.  You must be current and owner-occupied and owe more than the house is worth.  The existing lender must agree to reduce the principal by at least 10% (hence the name short refinance) and the resulting LTV must be no more than 97.75%.  Obviously the loan will have mortgage insurance and you must meet the FHA underwriting guidelines.  If you have a second, the new first and the existing second (subordinated to the new loan) must be no more than 115% of the appraised value.  There is a very good FAQ here.  There is also information on the HUD website.

This program seems like a good but as with most of the foreclosure "rescue" programs limited.  It may fill a gap in the existing programs.  Unfortunately at this time Fannie and Freddie do not appear to be participating, but they also have some similar programs.  This new FHA loan does give the underwater borrower with a lender who is willing to work with the new program an opportunity to avoid eventual foreclosure or short sale. 

HUD announced today January 15, 2010 that it is temporarily relaxing its 90 day seasoning rule which currently prohibits FHA loans for properties owned by the seller for less than 90 days.  See the HUD press release for more details.

According to the press release, "The policy change will permit buyers to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. This will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities."

The new rule will take effect February 1, 2010 and will be in place for one year.  To try to avoid the use of the FHA financing for flipping HUD is putting certain restrictions in place.  The new policy will only apply to sales meeting the following guidelines (from the HUD link above):

• All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
• In cases in which the sales price of the property is 20 percent or more above the seller's acquisition cost, the waiver will only apply if the lender meets specific conditions.
• The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.

There is more detail on the HUD site which contains the specific requirements applicable.

This change may be of major assistance to borrowers who want to but recently foreclosed property but cannot purchase directly from the bank.  It will also benefit  real estate investors (and some "flippers") since it allows FHA financing where it has been previously prohibited.  A resale can be for up to 20% more than the prior sale within the 90 day period.  If it is over 20% more, certain requirements must be met, including things such as verifying that improvements have been made in the property.

This rule change or waiver should be of major interest to real estate agents marketing foreclosed property.

As I discussed in a prior blog post, fee based short sale negotiators or mortgage modification companies need a license to do business in Connecticut as of October 1, 2009.  In addition to a license, the new law also limits the fees that can be charged and requires a written agreement with the borrower, among other requirements.

The State Department of Banking (DOB) has now issued the required forms as well as provided further information on the licensing process.  The DOB has updated their web site to provide some guidance on who must be licensed, as well as providing links to the licensing forms.  The exemptions from licensing are listed, which include a CT licensed attorney, a lender, a CT licensed debt adjuster, and non-profit institutions.  The application fee is $1,600.00.  A number of forms must be filed and a bond must be obtained to apply for a license.

In addition, the DOB has issued a schedule of the maximum feesthat can be charged for performing short sale or mortgage modification services.  The maximum fee for a short sale or loan modification is $500.00, which can only be charged after the successful completion of the activities listed in the required written contract with the borrower.

Had a nice leisurely Sunday today, and since Columbus day is holiday here in CT, we get another Sunday tomorrow!

We did two enjoyable activities in town today.  First I had a nice nature walk with my two younger children (10 year old twins) on same land of the Hamden Land Conservation Trust (http://www.hlct.org) that they have helped to protect from development.  It was informative and beautiful.  We had some great views from the ridge line we were on, only wish I had some pictures to share!  The fall foliage is starting and it was such a clear day, and we met some nice folks from town.

Then we went to our local Hamden orchard and farm store, Hindinger Farm (http://wwww.hindingersfarm.com) and again enjoyed the beautiful fall day,  the great views and the excellent local apples (we bought a bag of McIntosh and a bag of Fortune, not familiar with those but they taste similar to a Delicious or at least have some Delicious in them).  This farm has been in the Hindinger family for generations and is now protected from development under the state farmland preservation program.

Later my daughter went to a farm in nearby Cheshire with one of her friends do some apple picking of her own.

All in all a great day, and a reminder of why I like living here so much!

The Connecticut legislature has recently passed legislation that was effective October 1, 2009 which will for the first time explicitly regulate people and companies that (for a fee) assist consumers in negotiating their mortgage debt, including fee assisting with short sale negotiations.  The legislation is Senate Bill 950.

This legislation applies to all in state and out of state companies and individuals who charge a fee for negotiating someone's debt.  The new law prohibits advance fees, and requires licensing and bonding for those who want to engage in this type of activity.

What this means is that if a fee is charged to a consumer in the course of settling or negotiating a debt, that activity is now regulated by the state and a license to perform it is required.  The license will be obtained from the State Department of Banking.  Attorneys admitted to practice law in Connecticut are exempt from the new law (attorneys NOT admitted in CT do not appear to come within this exemption).

So lets say you are a Realtor and have a short sale listing, and you help the owner negotiate with their bank.  Do these activities come within this new legislation?  I must say I do not know the answer to that question.  The statute is written very broadly and does not provide a specific exception for Realtors.  The argument the Realtor would make is that they are not expecting a "fee, commission or other valuable consideration" from the act of the debt negotiating, but rather from the sale of the property for which they have a separate commission agreement,and the short sale negotiations are ancillary to that.

So if you are a Realtor and have a separate business doing fee-based debt negotiation or the like, you will  have to be licensed and your contracts and activities will be regulated.  If you are a Realtor and doing short sales but do not charge extra for the service, I would get a legal opinion or advice from an attorney to verify that such activities are OK.

I have the text of the relevant portion of the proposed statute if anyone is interested in reading it in detail.   Just contact me and I will email it to you.  It is also available on the web site for the CT legislature,

If you are interested in becoming licensed under this new law, or want further information about its applicability, please contact me.