April 17th, 2017 9:29 AM by Ron Mastrodonato
April 17, 2017 – There are many ways to transfer real property beyond "Joe Buyer purchased a property from Bob Seller." Realtors who call the Legal Hotline about transfers often ask about property "flips" or "simultaneous closings." Usually the scenario involves a buyer interested in a property that the seller only recently acquired; in some cases, it's a property the seller will acquire very soon but doesn't even own yet.
If a customer wants to use any type of unfamiliar transfer method, it can be intimidating – and potentially risky – unless you know the issues your customer might face during the transaction.
Here are some factors to keep in mind if you're considering involvement in a transaction like this:
1. Who is the seller and how did the seller acquire the property?Is it a bank/REO sale? Or is it an investor who acquired the property after the lender foreclosed? Or is it the son or daughter of a deceased homeowner? Was it acquired at a tax sale?
If the seller hasn't owned the property long, he probably has little-to-no knowledge of its history, and your buyers should plan to have all inspections done to verify the property's condition – including ones beyond a physical inspection of the property. There can often be property issue(s) that the seller doesn't know about, making these inspections extremely important.
Even if a buyer gets a seller's property disclosure form, it likely won't contain much usable information. Depending on how the seller acquired the property, there could also be title issues that need addressed, which likely involves the use of an attorney. It's always better to tackle potential title issues upfront rather than discover one right before closing.
2. Does the seller actually own the property – or is he in the process of acquiring title before closing?Many times, lenders foreclosing on a property will go under contract with a buyer before the foreclosure is finalized to shorten the length of time they hold title and lessen their financial losses. Usually the fine print within REO contracts contains a clause about this, detailing what happens if the lender can't obtain title to the property before closing. It's important for buyers to read – and fully understand – provisions like this in the sales contract, which can vary by lender.
Sellers should make sure they have language in the contract that addresses this contingency (i.e. obtaining title) and verify the contingency language with their attorney. For example, if the seller is the son or daughter of a deceased parent, is that parent's name still on the title? If so, showing up at closing with a death certificate isn't normally enough for a title company to close the transaction, and the son/daughter must take additional legal steps to pass marketable title on to the buyer. It's always advisable for the seller to check with the closing agent (or his or her attorney) when the process starts to find out what, if any, documents may be required for the closing to occur on time.
3. How does the buyer intend to purchase the property?Cash? Mortgage? If mortgage, what type of financing? Certain types of financing, like FHA/VA loans, require the seller to have owned the property for a certain number of days before they'll lend money to a buyer. While there's nothing illegal about an investor purchasing and reselling property in a short period of time, he or she might want to note the type of financing a buyer intends to pursue because it could affect the transaction.
These transactions can be legally complex, and if buyers or sellers have additional legal questions or concerns, they should seek assistance from their personal attorney.
Meredith Caruso is Manager of Member Legal Communications for Florida Realtors
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