Answers For Owners Blog

Do I have to tell a buyer every little thing wrong with my house before they buy it? Not necessarily according to the New Jersey Appellate Division.

Boschen, et al. v. Campanelli Recently the New Jersey Appellate Division issued a decision in a case where the sellers of property did not disclose that there were odors present at the property during the summer. The court felt that the duty to disclose this information was not necessary since the odors came from a composting operation at the municipal recycling center across the street from the subject property, which was readily-observable.

The court felt that

since the property was not new construction; the sellers could not be characterized as professional sellers of real estate; and the composting operation did not fit within any of the categories selected by the Legislature as requiring disclosure by professional sellers under the New Residential Construction Off-Site Conditions Disclosure Act.

It would be anomalous to hold defendants, as non-professional sellers, to a standard higher than that applicable to professional sellers.

While it is advisable that every homeowner selling their house should enter and conduct negotiations in a honest and ethical manner, buyers also need to be aware of what they are buying. Buyers should always have a home inspection completed on any property they plan to purchase. Buyers should also take time to look around the neighborhood at different times of the day and learn about the businesses that may be active in the area and may impact the property.

I read an editorial in the April 9th edition of the New Jersey Law Journal that sums up the situation many homeowners facing foreclosure or considering bankruptcy are experiencing today. I've written about the need for lenders to be responsible when making loans, and here's a hat tip to the Law Journal's editorial staff.

They Used To Call It 'Usury'
It is commonplace for banks and other financial institutions to offer credit cards to "pre-selected" borrowers with low initial interest rates for extended periods of time. Is it too good to be true?

In 2005, banks and related financial institutions succeeded in securing the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act. President Bush declared it would make more credit available to poor people. In 1978 the U.S. Supreme Court ruled that banks were free to charge the interest rates in their home states to customers across the country. This set the table for a feast for financial institutions.

The new bankruptcy laws contain a provision which forces many debtors into Chapter 13 compulsory repayment plans rather than a discharge. A Housing Judiciary Committee report had stated that such compulsion might be considered involuntary servitude.

In the worst situation of a borrower's default, the lender can impose interest rates as high as 29.99 percent plus late fees. Lenders fall all over each other in extending loans to persons who are desperate for money, by offering no or low interest for loans.

Such loans carry many conditions. Among them, for example, is prompt payment of each monthly payment on a designated date. Failure to pay promptly results in canceling the favored rate and leaving the debtor with increased rates determined by the lender. People who fall into the category are called "revolvers". They are the ultimate targets of the extremely favorable rates. It is reported that a great many who seek relief in Bankruptcy Court could not repay any debts. Many of these became indebted for reasons beyond their control, like loss of a well paying job, large medical expenses, sudden emergency situations, etc. These people have little prospect of repaying loans that grow expansively at loan-shark rates and late fees.

A great many people do not have healthcare coverage. This aggravates the financial situation of middle-class people who live check to check and who do not have the means to pay health care providers for extraordinary care they may need. Students and seniors who live on pensions are particularly vulnerable.

There was a time when excessive interest rates were considered to be "usury". Easy credit and laws favoring lenders do not speak well for the free market. The rich get richer and the poor and middleclass get deeper and deeper in debt.

This week's Homeowner Web Resource deals with 10 questions that you should ask any potential real estate agent. I liked what Jay over at dumb little man had to say and thought that it would be helpful to those of you who are about to sell your house.

Some of the pointed questions:

How are you going to advertise my home?
Why are you saying my home is worth $400K when I think its worth $325K?
Is your realty company placing pictures on your website and other listing services?
Will you be at the closing or will you send a lackey?
Show me your municipal reporting on the area?
What are your stats?

In a recent unpublished U.S. Bankruptcy Court case, (PDF) a debtor was denied a discharge when the Court found she knowingly and fraudulently misled the Court when she sought and received permission to sell her home for $200,000 but failed to disclose the existence of an agreement which permitted her to lease the property after the sale and then buy it back in two years for $300,000. The Debtor had entered into an exclusive listing agreement with a real estate broker without Court approval to sell the home for $300,000, but sold it instead for $200,000 subject to the related lease purchase agreement. The Court also held that the sale defrauded creditors because the value of the property, in excess of mortgages and Debtor's exemption, was not realized for the benefit of the bankruptcy estate.

As a general rule, if the Seller is in bankruptcy, a court order is required for a sale and any listing of the property and the Court must be apprised of all the pertinent facts.

As a follow up to my recent post regarding the spike in Newark foreclosures, I am pointing to the White Collar Crime Prof Blog's post,Tough Times At Beazer Homes.

Beazer Homes is currently being investigated by the FBI, HUD, and IRS in respect to its mortgage lending to low-income borrowers. The investigation by the Federal agencies is a result of an investigation by the Charlotte Observer which determined that the foreclosure rates in several North Carolina Beazer developments ran at around 20 percent, compared with the national average of 3 percent.

Beazer is the 6th largest builder in the U.S. and regularly provided ARM mortgage financing for their properties. This is a common practice for larger homebuilders who want to maximize the amount of money they are able to make in their deals. Beazer happens to be the first but certainly not the last builder that will be called to task on their lending practices.

Earlier today a friend sent me a link to this New York Times Article, Behind Foreclosures, Ruined Credit and Hopes (RR) which highlights some of the personal stories of people facing foreclosure in Newark New Jersey.

Newark is a local example of a national trend - People with poor credit were given mortgages by lenders who knew (or at least, should have known) they would not be able to afford. Now those people who started with little savings or moderate income are defaulting on the "no money down mortgages" which allowed them to buy a home.

Don't get me wrong, I believe that everyone who wants to own a home should be provided every opportunity to become a homeowner. However, lenders need to be responsible in their lending practices and they bear a responsibility to making sure that the loans they write are suited for their consumer. When loans are made that are not suitable, people are unable to pay and the bank is forced to foreclose - this is a double whammy. The individual given a loan not suitable for them has their credit destroyed and will take many years until they are able to get another mortgage to buy a home while the bank is forced to keep anywhere between 2 and 8 times the amount of the mortgage the borrower is delinquent on, in their reserves and not lent out. With more delinquent mortgages there is less money in the marketplace to loan and less people qualified to borrow the money that is there.