Our New Responsible Mortgage Lending law

Just when you thought you had seen the most stupid law from our legislature regarding real estate omitting common sense, here comes another! House Bill 2770 aims to make what was a federal offense a state class-B felony. While it is aimed at mortgage brokers, it has wide sweeping implications to real estate agents, buyers, sellers, home inspectors, contractors, and just about anyone else who has even a limited financial interest in a real estate transaction involving a mortgage.

cross my fingersThis law provides that a residential mortgage loan may not be made unless a disclosure summary of all material terms is placed on a separate sheet of paper and has been provided by a financial institution to the borrower and that a financial institution may not make or facilitate the origination of a residential mortgage loan that includes a prepayment penalty or that imposes negative amortization under certain circumstances. And here’s the catch-all clincher: The law says that certain acts and omissions by any person in connection with making, brokering, or obtaining a residential mortgage loan are unlawful.

While part of the law attacks important issues like negative amortization and pre-payment penalties, it’s the broad definition regarding the disclosure of material facts relating to a property that causes me the greatest concern.

Example: Buyer purchases a home “subject to inspection

Great Views = Landslide Waiting to Happen? Looking for a Geologist to Evaluate Slope Stability

Wow, what a view!  It takes your breath away…now let’s not let it take away good judgement too.

Sometimes a great house, with a fabulous view needs a little extra inspection and evaluation to help our clients make informed decisions when buying a house.  I have been working with a wonderful couple for awhile now and it looks like we have finally found their next home.  This home is hitting all the important criteria, and has a bonus of a beautiful view. 

There is a BIG territorial and mountain view because the home sits on a high, steep bluff.  So while to my untrained eye there does not look to be anything that indicates a problem, I have suggested to my clients that we have the slope’s stability looked at and evaluated by a professional to be reasonably sure that this is good home for them.

Since I have not needed a geologist technician before, I asked around and found one one who was referred to me by a commercial Geo-tech company and will probably have him evaluate the slope.

My question is, have any of you needed to have a slope evaluated either for clients or yourself?  If you did, who did you use?  What did the evaluation determine?

A lesson in the dangers of distressed property purchases…

A friend of mine contacted me the other day about a property investment opportunity that her brother-in-law (BIL) was placing in front of her and her husband. The property in question is located in the city and state where the BIL lives – and it’s far from the Seattle area at roughly halfway across the country. The house reportedly, and confirmed in the report I read, has a major mold issue that has attacked even the underlayment of the floors. (if you want to see some gross mold photos, check out this site) The buyer’s agent and BIL (who agent represents) are attempting to state that the water damage was caused by the former owner having a drug problem and not cleaning up after himself or perhaps because of a water leak in the bathrooms and from a leaking dishwasher. Hmmmmm…..

The house is supposedly being offered off-market at a lowball price of $400k for this tony neighborhood where $550k-800k is the common price points for various sized homes. Even the listing agent is nervous about selling the house with the mold issue but the owner is now deceased and the family can’t afford the home or to fix the home. This tells me that there is likely no insurance money to fix the problem especially if the insurance company deemed it to be failure of the owner to maintain the property. BTW – did most of you know that this is a common disclaimer in most insurance policies? If an insurer can point to an owner’s failure to maintain (ie. ignoring a leak) they can deny coverage. Also, as I’m learning, this particular state has had a rash of insurance companies choosing to deny the option of mold coverage in their policies at all… period because of prior mold problems that required huge insurance payouts.

Now, the price point initially sounds good but my personal concerns surround the mold issue, the fact that it has not been specifically identified in the mold specialist/inspection results, and the amount of work that actually needs to be done to get this house back in to the condition that this neighborhood typically expects. We are getting conflicting reports about the source of the mold and no one has sent my friend photos of the subject property to review. Also, there is the stigma associated with trying to sell a house that has HAD mold – and note I say “HAD” mold because frequently the average consumer can’t get past… well, the past. Agents are required to disclose known material defects, and so are homeowners (at least in WA State), so you’d have to tell a prospective buyer about the issue, even if it was fixed.

The BIL is a contractor and thinks he can replace the floors for about $20k and the only other item he thinks he needs to fix is a broken bathtub. Again, hmmmmmm……. Somehow I don’t think that this will be all that needs to be done.

His (BIL) expectation is that someone else will come in with the money to buy the property and he’ll do the labor and then they’ll split profits. I’m telling my friend/client that there is a lot more that needs to be sorted out and specified in a contract between the parties of the financial investor and the contractor (BIL). Thankfully, she agrees. On top of this issue there are questions of whether or not the house can be purchased with financing (likely not), what type of financing (preferably a renovation loan) is available, can it get insured, will it require oversight (it seems so based on the mold report) and by which entities (city, inspector, insurance, bank? most likely all of the above) and what it will cost to have re-testing done (what if it doesn’t pass?).

After even more phone calls today to the agent I have now learned that the listing agent is actually his secretary who has just gotten her license 2 months ago and that this is her first deal – ever. On top of this news, I also ferret out that the house is in foreclosure so we’re in a short sale position IF the $400k is even accepted. Wait, let’s recount the issues in a quick rundown….

1. mold problems that may or may not have had the water issue fixed.

2. foreclosure with short sale with proposed sale price at 80% of owed amount.

3. estate sale with unknown additional liens, taxes, etc. owed or owing. If the guy was truly a cocaine addict as desribed to us then there could be a lot more outstanding. Also unknown is who is actually selling the house: the widow, the attorney, the lender? Since it’s not yet foreclosed it’s likely the widow or attorney.

4. listing agent that works for the guy trying to be the buyer’s agent (MAJOR conflict of interest and not initially disclosed)

5. 1st time listing agent that has no other sales or negotiating experience working with a guy who has little, if no, experience in short sales.

6. unknown actual costs of repairs

7. no current photos available for review by prospective buyer (yet)

8. unknown lending environment for a distressed and damaged property

9. unknown insurance liability and potential to be an uninsurable property

I know what I think about this deal (a potential disaster) but I’d be curious to hear from others. What are your opinions? Would you go for it, and why? If you wouldn’t touch it, I’d love to hear your comments too.

Mythbusters takes on water heaters as rockets….

The other night I watched Mythbusters with my partner, Michael, a show which I have to admit I only see occasionally and only when he’s watching it. It’s okay, but I usually prefer reading. Anyhow, one of the myths that they were attempting to bust is the idea that a water heater can become like a rocket and shoot through a home’s roof when it has failed.

Ok, I’ve been an agent, and a homeowner, for many years and I am fully aware of this “truth” mostly from having spoken with many knowledgeable contractors and inspectors over the years – not to mention feedback from my dad who is an all around great fix-it guy.

Well, for anyone who has heard about this “myth” before but didn’t believe it… here is the clip from the Mythbusters folks. It’s quite eye-opening….

I wonder, if this happened to a homeowner and the insurance company determined it was the homeowner’s fault due to negligence because of lack of maintenance – does this mean they wouldn’t pay? I’m all about maintenance on a home’s water heater and replacing them BEFORE failure of any kind so I hope I never find out personally.

The (legal) importance of a home inspection

(This post is not legal advice.  For legal advice, consult a lawyer about your particular situation.)

First, my apologies to the RCG community.  I recently took a lengthy vacation and have been quite busy since my return.  Moreover, I now need to hire additional staff and thus move to a larger office space.  So, please forgive my less-than-frequent contributions until things return to “normal.”

Recently, Russ authored a post discussing the recent Supreme Court case of Alejandre v. Bull (beating me to the punch, in the process).  This is indeed an important case for several reasons, one of which Russ and the subsequent comments touch upon: the importance of a thorough home inspection.

Initially, the home inspection (if performed competently) provides the buyer with information regarding the condition of the house.  Obviously, the buyer is best served having full knowledge of any existing defects and able to make an informed decision about whether to complete the purchase. 

In light of the Bull case, however, the inspection also has legal significance.  In that case, the Court (in paragraphs 32 and 33) noted that a buyer of real property may still have a claim of fraudulent concealment and/or fraud where the seller fails to disclose a known defect (notwithstanding the fact that the buyer does not have a claim for negligent misrepresentation due to the economic loss rule, as discussed by Russ).  To prevail on a claim of fraudulent concealment, the buyer must show that the defect at issue “would not be disclosed by a careful, reasonable inspection by the purchaser.”  To prevail on a fraud claim, the buyer must show that he had a right to rely on the alleged misrepresentation of the defect at issue.  This “right to rely” is “intrinsically linked” (using the Court’s words) to a buyer’s duty to exercise diligence with regard to the representations at issue.  

Accordingly, an inspection is critical to retaining the ability to make a claim of fraud or fraudulent concealment against a seller.  If a buyer skips the inspection, the buyer will have great difficulty showing that the defect would not have been revealed by an inspection.  The reverse is true as well: by getting an inspection that fails to uncover the defect, the buyer will have a very good argument that the defect would not be (and indeed was not) revealed by an inspection.  Similarly, absent an inspection, the buyer will almost certainly have failed to exercise the necessary diligence to identify the defect, regardless of seller’s representation.

An inspection has an immediate, practical benefit.  However, it also has a legal benefit.  If you forego the inspection, you essentially waive any claim against the seller for failing to disclose a known defect.

Phinney Neighborhood annual home fair, Sunday, Jan 28th

Phinney Neighborhood Center is hosting their annual home fair this weekend. This is a wonderful event with a lot of great information about home upkeep, upgrading, and overall design concepts. Several builders and architects attend this event and provide their expertise in a comfortable environment. One of my clients, Kirk Jolley, of Kirk Redo is usually in attendance as an exhibitor. He’s got great woodworking and finishing skills as I’ve seen his personal residence that he rebuilt after a former owner’s long neglect and I’ve seen many of his client projects, including the floor of my own home office – and he’s a great guy too! I’ve also volunteered in the past to help at the event as a member of the Phinney Neighborhood Association but sadly can’t make it to this year’s event. However, I do believe it is a great opportunity for people that are considering making changes to their home in the coming year to start getting educated about the process and to get some wonderful design ideas.

HOME DESIGN AND REMODEL FAIR : Imagine, Explore, Build
Sunday, Jan. 28, 2007, 10 a.m. – 4 p.m.
Phinney Neighborhood Center, 6532 Phinney Ave N.
Admission: $5 for PNA members, $8 for the general public, children under 12 Free

The 10th annual Home Design and Remodel Fair will offer local homeowners a chance to meet with trained professionals and get advice on remodeling and home improvement projects.

More than 75 exhibitors ranging from general and specialty contractors to landscape professionals to architects and designers will be on hand to offer advice and resources needed to complete any home improvement project. Many of the exhibitors have a “green” emphasis.

Presentations will also be featured throughout the day. Topics include everything from choosing a contractor to stocking your toolbox.

The presentation schedule includes:

10:30 Choosing & Hiring a Contractor
11:10 Remodeling for Resale Value
11:50 Financing Your Remodeling Project
12:30 Working with an Architect

12:45-1:15 in the Blue Room
Q&A with Around the Home & More KOL Radio hosts Kevin Liger & John Kappler

1:20 DIY Mini Home Inspection
2:00 Making the Most of What You’ve Got
2:40 Tools for the Homeowner
3:20 Design/Build: What is it?

ASBESTOS – Buyer Beware!!

[photopress:inspectors.jpg,thumb,alignright]I am just beside myself on the topic of home inspectors and asbestos. I don’t care how many inspectors want to tell me why inspectors aren’t “obligated” to call asbestos in the inspection, I will still keep saying: “You have GOT to be KIDDING me!!

I’ve seen more asbestos in homes in the Seattle area than in my entire career to date around the Country.

“Well Ardell, I know we both “think” that’s asbestos were looking at there, but we really can’t say it’s asbestos unless we send it out to a lab and have it tested. So we just have this disclaimer in our contract saying we are not responsible for calling asbestos in the inspection…and that is sufficient for US” US being the home inspectors!!

Yesterday I literally took a razor tool from the inspector and cut open some paneling held together by duct tape in a basement and forced an inspector to look behind it before he wrote “inaccessible area” on the report! I said if you don’t lend me something to do this with, I’m going to use my bare hands!

How come I can get 10 average Joe’s to stand around the asbestos wrapped pipes, who will all say “Yep, dats asbestis alright”, but I can’t get one inspector to note asbestos in a home inspection report?

Oh, and here’s the agent’s lovely comment (I represent the seller and she represents the buyer) “Not my problem. The buyer chose their inspector and if the inspector doesn’t tell him what he needs to know…that’s not my problem, is it?”

In PA inspectors included “testing for radon” by setting canisters in the house and sending them to the lab. They couldn’t see radon or taste it or smell it, but they didn’t put a disclaimer in their contract saying “Duh, Don’t Know”.

Here’s a clue, Risk Reduction equals every buyer KNOWING WHAT the heck they are buying!!, not 25 disclaimer and disclosure forms covering everyone’s butts in the industry! And they have the nerve to tell me that they don’t want me at the inspection because I make them look bad…Oh WELL!!

And if you stick that pointy metal thing and chunk away at the mortar between the bricks of my seller’s house one more time in some silly act of macho bravado, I’m going to take it out of your and and stick it where you don’t want it stuck.

Some days I want to be a waitress…

To Stephane, this entire post should be in bold AND all caps! I am heeding your advice. But if you tell me to stop using !!exclamation points!!, we’ll have to agree to disagree 🙂

Sales that “fall apart” on Home Inspection

[photopress:brokenmask.jpg,thumb,alignright]Tim’s Comment: “What many do not realize is the extent and frequency in which commissions are reduced via credits to the parties at closing. It is very common.’While Tim raised this subject as if these credits were commission negotiations, and sometimes they are, more often these credits are how agents help the buyer and seller accomplish their true objective. The true objective of a seller is to sell his house. The true objective of the buyer is to close on their new home.

Often during the home inspection negotiations, people get all upset. The buyer is really ticked that “the seller won’t fix…:and the seller is really ticked that “the buyer is being so petty as to want him to fix…” For many, many years, agents have used a portion of the commission to keep everything together and throw money at the problem that the buyer wants fixed and the seller won’t fix. With commissions being reduced, and so many agents paying referral fees and bottom feeder site fees and lead generation fees, there is less and less money available to keep these sales together, so more and more are falling apart.

It will be very interesting to see if the new business models that cut the commission down to the bare bones, have a higher rate of sales falling apart at inspection time, with not enough commission in play to fix what the buyer wants fixed and the seller won’t fix. The first time I saw an mls listing that required the buyer agent to submit the offer directly to the seller, one of the $500 mls only listings, the poor sellers were on their third round with two sales falling out of STI. They had even lost the house they were going to buy because of the failed efforts, and were on their third try at getting a buyer that would “stick” to the end. So my guess is the less money on the table to hold everything together, the more sales will fall apart.

When I negotiate with a buyer or seller, I make sure based on the type of property and price range, that I am not leaving the client so short, that the objective cannot ever be attained.

Top Ten Things A Home Inspector Says

[photopress:top_10.jpg,thumb,alignright]It’s Time for another Top Ten! Those of us who have been to 100 too many home inspections can practically stand behind a home inspector and mouth what he is going to say next, when it comes to these “Top Ten Things A Home Inspector Almost Always Says”. No we don’t do the two finger rabbit ears behind his head 🙂 I swear we don’t!


You need a GFI over here by the sink, oh and another one over here in the master bathroom, and one down here by the kitchen sink…and one more out here in the yard, at the outlet next to the hose bib.


Contact…contact…Earth-to-wood contact over here.Get that firewood AWAY from the HOUSE!


Now this here tree is planted WAAAAY TOO CLOSE to the HOUSE!


You want to treat the roof for moss BEFORE you get moss. You can spray the treatment on with a hose from on the ground. But first you have to get the moss off the roof, because the treatment will only keep moss away. It won’t remove the moss you’ve already got. I tried to get a website link for you, but lots said we should all trash our roofs and get metal ones. Moss can’t grow on a metal roof. Pretty noisy neighborhood if it starts hailing on all the metal roofs.


Cracks in the Driveway!


Pine needles on the roof, in the valley flashings and in the gutters.


Chimney flashing. if I had a nickel for everyone of these…


Hanging gutters, loose gutters, missing gutters, gutter downspout too close to foundation, divert water further away from the house.


CAULK! Take out the old caulk…put in the new caulk. Caulk inside where the tub meets the tile. Caulk outside of the tub where the tub meets the floor. Caulk around the kitchen sink. Apparently we all need many tubes of caulk in various colors, including no color at all!




Which Home Inspection Addendum to Use?

Here in the Seattle area, the buyer of a property gets to choose which Home Inspection Addendum to use, when making an offer to purchase. The primary difference between the two, lies in who has the “unilateral” POWER to keep the contract in-force or not, after the inspection.

The seller can counter by replacing the full inspection addendum with the other variety, but that is rare. I recently had an agent ask if “we wanted” to change the inspection addendum to the one that favored the seller, under the guise that another offer was coming. We decided to call her bluff, and our offer was accepted as written, there being no other offer in hand by the time ours required a response by the seller. Though she was quite surprised that we called her bluff in that regard.

The decision regarding which inspection clause to use, often has very little, if anything, to do with the inspection. It has more to do with whether or not the buyer retains the right to cancel based on the inspection.

I currently have two contracts in escrow for the same party, one on the sale of their property and one on the purchase of their next property. On their sale we have a 35B “Seller’s Opportunity to Repair” inspection addendum, giving them the power to keep their contract in force regarding the sale of their property, at least with regard to the inspection. On their purchase, we have a 35A “Buyer’s Satisfaction” inspection addendum, giving them the right to cancel based on their inspection, to counteract the “resale certificate” out, on their sale contract, since they are buying a home and selling a condo.

To understand the difference between these two addendums, you should review both inspection forms, 35A and 35B AND ALSO the followup forms 35AR and 35BR. The striking difference between the two is more noticeable on the followup form 35BR, with regard to the seller’s power given him by the buyer. If the seller checks the box on the follow up form saying he is going to repair the items, the inspection contingency is satisfied. It becomes a unilateral decision of the seller to satisfy the inspection contingency, whereas the 35A is a unilateral decision of the buyer to cancel.

Simply put, a buyer who makes an offer using a 35A “Buyer’s Satisfaction” inspection addendum, retains the right to cancel based on the inspection. On a 35B, the seller can simply check a little box, agreeing to repair the items in the report, causing the inspection addendum to be satisfied. The buyer cannot disagree with the seller’s choice and walk from the transaction, without risking the loss of their Earnest Money Deposit.

So which should you use? If their are multiple offers, you might be able to avoid a bidding war by using a 35B, which favors the seller, so you can win on terms vs. price. 35B trumps 35A and “no inspection contingency” trumps them all. I don’t recommend no inspection contingency in a blog, though often do in “real life” where I have the opportunity to view the property and ascertain my clients true needs and sensibilities.

It would be interesting to hear from anyone out there in the Seattle area who recently completed a sale, either as a buyer or seller. Which inspection contingency did you use and why? What factors led you to the decision to use a 35B vs. a 35A, or none at all?