Buying and selling a house can be quite daunting with all of the paperwork, agreements, and negotiations that accompany the process, not to mention the money involved.  Buyers are faced with the task of finding a suitable property that fits their needs and is within their financial reach—which is easier said than done a lot of the time. Sellers are presented with the responsibility of preparing the property, providing all of the information to the buyer, and attaining an adequate amount of money for the home. Everyone involved in the process has specific roles and responsibilities that are controlled by various laws and regulations that must be followed to avoid an unwanted claim or worse, litigation.

                                                                                                                                                                                                                                                                                                                                                                                                                                                    One of the gray areas of real estate dealings lies in what the seller must necessarily disclose to the interested buyer.  First it is important to note that in Massachusetts seller’s have limited obligations.  Still, revealing general information about the property is a no brainer. It is customary, for example, to disclose all dimensions of the house, number of rooms, type of materials used, quality of construction, the age of the house, and other various tidbits of information that the MLS listing sheet includes. But how much is one required to reveal about the events which occurred on the property? Legislators have a difficult time determining such boundaries and balancing the seller’s privacy with the buyer’s right to have a full understanding of the home he or she is about to purchase.
         

As a buyer in the market for real estate, one may want to know more about the property he will potentially purchase and find out what really went on in the house he could be living in. Law MGL c. 93 s.114 lays out a standard of disclosure that may be displeasing to an interested buyer because it outlines that the seller need not reveal “psychologically impacted events.”  But what does that actually mean? A “psychologically impacted event” is quite an ambiguous term that only vaguely indicates what a seller is not obligated to disclose. Basically what the law states is that the seller does not need to necessarily reveal any event of psychological significance that occurred on the premises including death of an occupant, paranormal activity, health issues of a prior occupant or if a murder or suicide occurred in the house.  In the interest of the buyer the law also delineates that the seller may not willfully deceive the buyer in any way; otherwise, if the buyer inquires about any one of the previously mentioned occurrences, the seller may not withhold information at that point. The informed individual can ask such questions of the seller if these instances are of interest to him, but otherwise a buyer may find himself purchasing a home with a hidden history.

                                                                                                                                                                                                                                                                                                     So who does this law protect and how does one use it to his or her advantage? Largely it protects the seller and alleviates the legal responsibility to disclose information that is potentially harmful to the sale of his home. Even though buyers generally communicate with the real estate brokers more than the actual sellers, this law provides a provision for the seller to, best said, “avoid” such information.  The law does protect the buyer by necessitating that there is no willful deceit and that the seller is straight forward in responding to the buyer’s inquiries. It aims to protect the buyer from unscrupulous behavior on behalf of the seller and broker in the way of intentionally lying about the events on the property. If “psychologically impacted events” are of interest to you when purchasing a home be sure to discuss this with your attorney or buyers agent and ask your seller or seller’s agent.

Home values remain low and there are many, many homeowners that owe more than their house is worth. With unemployment still at record levels (although perhaps improving some) many owners are not able to make their monthly mortgage payment. Foreclosure suddenly is something that must be considered. However, before things get to far down the road it probably makes sense to consider the possibility of a short sale.

What is a short sale? Very simply it is an agreement by the lender to accept less than is owed on the outstanding mortgage to allow the house to be sold to a third party. While nobody wants to sell “short”’ it is often the best alternative if you find yourself too far behind on your obligations. Why would a lender accept less than what is owed?  Ultimately it is all about the money and lenders will prefer a Short Sale if it limits their loss (as compared to taking ownership of the property through a foreclosure). For this reason a lender may even delay a pending foreclosure to facilitate a Short Sale.

Before deciding to move forward on a short sale you should discuss the pros and cons in detail with an expert real estate attorney. To assist in those discussions you should consider the following:

Benefits of a Short Sale:

• You can avoid a foreclosure. Very simply a short sale is better for you (and probably the lender also) than a foreclosure. You control the sale and can generate the maximum offer. You may not be getting a profit, but you will lessen any deficiency that you could be obligated to pay.
• No more mortgage payments to make or owe. This will end the stress of missed payments and will start you on the road to getting your credit situation back in order.
• You will likely be eligible, under current guidelines, to buy another home in 2 years instead of 5 to 7 years if your home is foreclosed.
• If your credit report does not reflect a 60-day+ late pay, you may be eligible to buy another home immediately. So, in an instance like this you may choose to get ahead of the curve.

Drawbacks to a Short Sale

• Waiting for the bank to respond to an offer is frustrating. Overall you have to understand that lenders are not concerned with your timing. They are going to proceed at their pace regardless – you may even lose a buyer – so this can become a very aggravating experience.
• You may end up owing money to the mortgage lender even after you sell your home. While you will avoid foreclosure, the mortgage lender may sue you for the balance of the mortgage. Often they will not do so, and some mortgage lenders will forgive the balance of the mortgage; but they are not under any legal obligation to let you off that easily.
• If the mortgage lender forgives the balance of your loan, you may owe taxes on the forgiven debt. One of the great benefits of bankruptcy is that debtors never pay taxes on the debt that is forgiven during bankruptcy. Please check with your tax adviser.
• The short sale could affect your credit report for up to 7 years – but here you have to think again that perhaps the alternative is less appealing.

Concerning credit issues – for many homeowners the chance to buy another home in two years makes the short sale an obvious choice once you find yourself upside down. Also, good credit behavior can begin to supplant bad credit in as little as two years.

The bottom line is that while we all want to make money when we sell our homes, in today’s economy that just is not always possible. A short sale may be the best choice for some. Do not make this decision without doing your homework and discussing with a qualified real estate attorney, but do consider this as an option if circumstances warrant.

One of the most important and simple steps that every homeowner should take when considering their overall asset protection plan is the recording of a Homestead Declaration to protect their primary residence. Important changes will take place in regard to this law as of March 16, 2011. Perhaps the biggest change is that the recording of a Deed now creates an "automatic homestead exemption" in the amount of $125,000.00. So for the first time – even if you do nothing - you will still have protection on your home in the amount of $125,000.00. This “automatic” homestead benefits the owner and the owner's family members who occupy or intend to occupy the home as a principal residence. Homeowners will retain the option of creating additional homestead protection in the amount of $500,000 which must be created by a separate written declaration. Our recommendation is that all homeowners file this written declaration. All homeowners must sign this declaration, which is a new requirement. Before only one owner signed the Homestead Declaration. Read the rest of this entry »