Friday, October 20, 2017

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Home Buyers Documented Investigation Key to Recovering for Defect Concealment

A recent Washington State Appeals Court decision is worth noting from both a buyer due diligence perspective and a seller liability perspective – Douglas v. Visser. Though this is a Washington case, Oregon realtors should consider whether their procedures would have helped prevent the case from happening. A home was purchased by a real estate agent named Visser for investment and rehab. Visser leveled several bungalows that were located on the property but attempted to renovate the main house. During renovation, Visser discovered dry rot in several locations throughout the home. Because his intended renovation was going to be more expensive and time-consuming than he anticipated, he sold the property to the Douglases.

The facts are always critical to cases like this, but the trial court's finding summarizes what happened nicely as follows:

During the course of renovating the house, the Vissers discovered significant wood rot to the sill plate and rim joist that connects the concrete foundation to the frame...Rather than correct these defects, the Vissers or their hired help made superficial repairs to the visible damage and covered up the rest.

The trial court further concluded that "the defects were unknown to the Douglases and were not discoverable by a careful and reasonable inspection." There were two critical problems for the Douglases' case. One, they received a Seller's Disclosure Statement that contained several "don't know" or non-answers. They rightly sought clarification in writing and requested a copy of the inspection report prepared for the Vissers when they purchased the property. However, the Douglases never received the inspection report and they didn't follow-up on answers to the Seller Disclosure Statement that they felt were inadequate. Later, the Douglases commissioned their own inspection report and it identified an area of rot near the roofline, an area of rotted sill plate, and sistered floor joists. Their inspector testified that signs of rot aren't that uncommon and that the inspection could not have uncovered the true extent of the damage, which ultimately forced demolition of the structure.

The Appellate Court held that the Douglases were on notice of a defect and had a duty to make further inquiries. The Court called the Vissers efforts to conceal the defects "reprehensible," but ruled that the Douglases, once on notice of a defect, had a duty to make further inquiries. Despite the fact that the damage was far more extensive than anticipated, it could not be said that the extent of the damage rendered the problem unknown by the Buyers, a key element of their case. The Court found significance in the fact that they follow-up questions regarding the Disclosure Statement did not deal with the rot in question and found significance in the fact that their inspection came in after the Douglases requested the Vissers' inspection report.

The lesson? A buyer's due diligence standard is probably higher than most buyers and agents believe. Any evidence of a defect places a burden on the buyer to make new inquiries as to the extent of the problem and such inquiries and the seller's responses should be carefully documented.

Home Under Water and Still Haven't Modified or Refinanced Your Mortgage? Check out HARP 2.0.

If you still have yet to refinance your mortgage in order to take advantage of historically low interest rates, you may want to take a fresh look at the idea now – before it’s too late.  The Federal Housing Finance Agency (FHFA) oversees Fannie Mae and Freddie Mac, two of the country’s most influential entities when it comes to the secondary market for residential mortgages.  The Obama Administration instituted the Home Affordable Refinance Program (HARP) through the FHFA in 2009 with limited success.  This spring, however, HARP 2.0 was released.  It greatly expands the program and incentives major lenders to participate in the following ways:  
•    Removing the 125% loan-to-value ceiling for fixed-rate mortgages backed by Fannie Mae and Freddie Mac;
•    Waiving certain representations and warranties that lenders must make to Fannie Mae and Freddie Mac;
•    Eliminating certain risk-based fees;
•    Extending the end date for HARP until December 31, 2013 for loans originally sold to Fannie Mae or Freddie Mac on or before May 31, 2009.

To be eligible for HARP 2.0, borrowers must meet the following criteria:
•    The mortgage must be owned or guaranteed by Fannie Mae or Freddie Mac.  In order to determine whether your loan qualifies in this regard, you can perform a search at the following links:  Freddie Mac and Fannie Mae.
•    The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009;
•    The mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP from March-May, 2009;
•    The current loan-to-value ratio must be greater than 80%;
•    The borrower must be current on the mortgage at the time of the refinance, with no late payments in the past six months and no more than one late payment in the past twelve (12) months.

For additional detail about the HARP program, refer to the Phase II Frequently Asked Questions at the following link:  http://www.harpprogram.org/faq.php.

Avoid Conflicts Over Your Property

Avoid Conflicts Over Your Property

Ever experienced conflict with a neighbor or co-owner?  A little knowledge about your rights and responsibilities can be useful in resolving, defusing or even avoiding it in the first place.  The following three items come up in my practice from time to time.

Fencing.  If your and your neighbor’s properties are divided by fencing, the replacement or repair of the fence can be a divisive issue.  Fortunately, there is an Oregon statute that requires neighbors to share equally the cost of repairs or replacement of a “partition fence.”  A fence is a “partition fence” if it was erected for the purpose of enclosing the adjoining owner’s yard.  Asking your neighbor to cover half of the costs of necessary repairs to such a fence is not only reasonable, but it’s the law.  This is true even with respect to a neighbor who is renting, so long as the adjoining property is being leased for a period of at least one year.  Of course, it is always a good idea come to an agreement on the nature and cost of the work in advance.  Without such an agreement, you’ll be entitled to reimbursement for half of the cost so long as the work simply restored, as close as possible, the original fencing.         

Trees and Vegetation.  Another common source of conflict between neighbors has to do with trees or other vegetation that is located on both properties – and thus shared – or trees and vegetation owned by one neighbor but overhanging the other’s property.  With respect to vegetation that is shared, neither owner can remove it without the other’s consent.  Generally, overhanging vegetation may be cut by an adjoining landowner at the property line based on the legal principal that one’s property line continues in a straight line up into the sky.  As with shared fencing, it’s always a good idea to alert your neighbor to your plans up front.  It may be helpful to emphasize that the owner of overhanging vegetation will generally be liable for any significant damage caused by it to a neighbor’s property.  Before removing trees, please keep in mind that many municipalities require a permit before cutting down trees of a certain size, even trees on one’s own private property.  Check there first.       

Shared Property.  Shared property comes in different forms, whether via ownership or use.  Adjacent property owners may share a private driveway. Vacation homes are often co-owned with friends or family.  Before a conflict arises, make sure you’ve thought through what might lead to a disagreement and do your best to address it.  Shared driveways are often subject to rules contained in documents you may have seen when you acquired the property, such as a deed, easement, or right-of-way agreement.  If you purchase property with a friend or family member, it is wise to deal with each party’s rights and responsibilities relative to the use and maintenance of the property and its contents.  In addition, make sure there is a well-defined exit strategy for each owner in the event an owner dies or wishes to sell.  The terms solving these issues are usually documented in a written “co-tenancy agreement.”  For investment properties, consideration should be given whether to acquire or own the property in a limited liability company (LLC).  The LLC’s operating agreement should then address all of the management and exit-strategy terms.     

An experienced real estate or business attorney can help you avoid or resolve property-related conflict by helping you identify issues, by drafting language to address them, or by negotiating resolution on your behalf.

Becoming a Landlord? A Few Items to Consider

As local housing prices continue to fall, many people will be looking to buy distressed properties as investments.  Buying low is just one part of the equation.  landlord1
Another is managing the asset.  If you are thinking about becoming a residential landlord, an ounce of planning may prevent a house full of cure.    What type of risks do you face as a landlord?  I think there are three main categories.

Legal and Regulatory Compliance 

You should become generally familiar with the laws and regulations applicable to the residential landlord-tenant relationship.  Landlords can do much to determine the relationships they will have with their tenants by the terms contained in a written rental agreement.  However, a tenant has certain rights under the law.  Oregon’s Residential Landlord Tenant Act (the “Act”) outlines certain rights and obligations of the parties that may not be overridden by contract (i.e., the rental agreement), in addition to default rules that may be overridden by contract.   For example, the Act includes notice requirements for (i) terminating month-to-month tenancies without cause, (ii) terminating a tenancy for certain outrageous conduct (e.g., substantial property damage, injury to another tenant, selling or manufacturing an illegal substance), (ii) terminating a tenancy for non-payment of rent and the tenant’s right to cure, (iii) terminating a tenancy for violation of a “no pet” policy and the tenant’s right to cure, (iv) declaring a default of other material terms of the rental agreement and the tenant’s right to cure (v) dealing with repeat violations after having given the required notice, and (vi) dealing with a tenant’s deposit upon termination.  


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