Supreme Court rules on disclosure of murder-suicide

On July 21, the Pennsylvania Supreme Court unanimously decided that a murder-suicide in a property is not a material defect that a seller has to disclose to a buyer.

The history of Milliken v. Jacono is well-known to Realtors®. A highly-publicized murder-suicide occurred on the property, and the estate sold the property to the Jaconos (yes, the estate did disclose the murder-suicide). Seven months later, the Jaconos were relocated. When they listed the property for sale, they spoke with their listing agent, who checked with both the PAR Legal Hotline and the State Real Estate Commission. In both cases, the Jaconos were told that the murder-suicide was not a condition “of” the property and disclosure was not required. The listing agent still recommended disclosing the murder-suicide, but the Jaconos declined the advice.

Milliken was moving from California to Pennsylvania. She found this house via the Internet, and took the necessary steps to buy it. Prior to settlement, Milliken reviewed the Sellers’ Disclosure Statement, received (but did not read) the homeowners’ association documents, and received and reviewed the title report that disclosed the Jaconos’ bought the property from an estate. Milliken did not undertake any additional investigation about the history of the property. After she moved in to the property, Milliken experienced a “cherry pie” moment, learning about the murder-suicide from a neighbor.

Milliken sued the Jaconos, the listing agent and the buyer’s agent claiming fraudulent misrepresentation, negligent misrepresentation, violations of the consumer protection laws, and violations of the Sellers’ Disclosure Law. The trial court dismissed the law suit against the Jaconos and the listing agent, finding that murder-suicide was not a material defect that a seller was required to disclose under either the common law or the Sellers’ Disclosure Law. Milliken appealed, and while a panel of the Superior Court initially agreed with Milliken, upon reconsideration en banc, the Superior Court held that there was no misrepresentation of a material fact that would support claims for fraudulent or negligent misrepresentation. Since there was no duty to disclose, there was no violation of either the Sellers’ Disclosure Law or the consumer protection laws. Milliken appealed to the Supreme Court, which agreed to hear her appeal only on the issues of fraudulent and negligent misrepresentation, and violations of the consumer protection law. This meant that the Superior Court’s holding that the Sellers’ Disclosure Law did not require a seller to disclose a murder-suicide was the law of the land.

The Supreme Court’s ruling contained several important points. First, the Court commented that using a disclosure form that revealed more information about a property than the law required does not create additional mandatory disclosure requirements. (Yes, the PAR Sellers’ Disclosure Form was the one!) Second, the Court stated that it was “not ready to accept that [a psychological stigma] constitutes a material defect.” The Court observed that requiring quantification of the psychological impact of various traumatizing events would be a “Sisyphean task.”

Third, the Court recognized that psychologically traumatic events do not result in defects to the structure of the house; they do not affect the quality of the real estate. Fourth, the Court noted that it would be nearly impossible to assign a monetary value to psychological stigma.

Lastly, and importantly for buyers’ agents, the murder-suicide was absolutely not a latent event. It was widely publicized in the local media and on the Internet; and was a well-known event within the neighborhood. The doctrine of caveat emptor still survives and places the responsibility on the buyers to ensure the property they are buying meets their needs. In the words of the Pennsylvania Supreme Court, “Purely psychological stigmas are not material defects of property that sellers must disclose to buyers.” It doesn’t get much clearer than that!

By: Brett Woodburn, Esq.

FHA, Fannie and Freddie regulator making moves to ease mortgage credit

Going forward, new borrowers will be allowed to miss two payments during the first three years after taking out a mortgage without triggering a repurchase demand from Fannie and Freddie. The mortgage giants will also not automatically demand that lenders repurchase loans if a loan’s primary mortgage insurance is rescinded.

A shift by the federal regulator of Fannie Mae and Freddie Mac could soon make getting a mortgage loan easier by giving lenders more wiggle room before the mortgage giants demand that they repurchase loans.

In his first public remarks since taking over as head of the Federal Housing Finance Agency, Mel Watt said he wants to address uncertainties surrounding the “representation and warranty” standards that can trigger repurchase demands.


Watt said Fannie and Freddie will continue to allow Fannie and Freddie to approve loans with debt-to-income levels above 43 percent when borrowers have “other compensating strengths,” and keep current loan limits in place.

Those moves could embolden lenders to approve mortgages to borrowers who meet all of Fannie and Freddie’s other underwriting requirements, but who previously might have seemed to pose too great a repurchase risk.

When lenders have done their due diligence and made sure borrowers meet Fannie and Freddie’s underwriting standards, the mortgage giants keep payments flowing to investors in mortgage-backed securities that mortgages are bundled into, even when borrowers default.

During the housing bust, Fannie and Freddie demanded that lenders repurchase billions in mortgages that the companies determined in hindsight had not met their underwriting standards, in many cases because lenders allegedly misrepresented the circumstances under which the loans were made.

While loans made today are defaulting at much lower rates, loan originators that want to sell loans to Fannie and Freddie want more certainty about what will happen if there’s another downturn and borrowers stop paying their mortgages. Will Fannie and Freddie guarantee payments to MBS investors or demand that loan originators repurchase their loans?

Watt said he understands that lenders want even more clarity around how representations and warranties will be enforced, particularly in the long run.

He said FHFA is looking to provide more guidance around the “scope of life of loan exemptions.” We know that lenders are concerned about how these exemptions apply to loans that have passed quality control reviews or have met the 36-month benchmark, and we will work toward clarity on this issue.

FHFA also intends to establish an independent dispute resolution program lenders can use to challenge repurchase demands; develop “cure mechanisms” to let lenders fix loan defects rather than relying solely on repurchases; and provide additional clarity on Fannie and Freddie’s underwriting rules.

In a separate announcement today, the Department of Housing and Urban Development outlined similar steps the Federal Housing Administration is taking to expand access to credit for underserved borrowers.

The average credit score on loans purchased by Fannie and Freddie is 752, FHA said, and there are 13 million people with credit scores ranging from 580 to 680.

“Shutting these consumers out of the market hurts American families and undermines our efforts to build more stable communities, create pathways to the middle class, and increase homeownership opportunities for minority and low-wealth borrowers. A healthy mortgage market serves all qualified borrowers. FHA is committed to finding ways to responsibly increase access for underserved borrowers.”

The FHA’s “Blueprint for Access” outlines steps the agency expects to take in coming months, including the establishment of “clear rules of the road” to help lenders quantify the risk of making a mortgage loan.

“Taking steps to establish clear quality assurance policies helps ensure lenders can make loans without fear of unanticipated consequences,” FHA said.

One step FHA is taking is developing a new methodology for evaluating underwriting defects to help lenders better assess the risk posed by a specific deficiency and more easily address the root causes of defects.

To encourage more borrowers to get counseling that can reduce defaults, the FHA plans to roll out a new pilot program — Homeowners Armed with Knowledge (HAWK) — that’s expected to save the average buyer $325 a year on FHA mortgage insurance premiums.

Inman News

NAR: Pending home sales increase for first time in 9 months

The number of homes that went under contract rose in March, marking the first gain in nine months, the National Association of Realtors reported today.

Pending home sales — a forward-looking indicator based on contract signings — climbed 3.4 percent from February to March, but were down 7.9 percent from the same time a year ago, according to NAR.

“After a dismal winter, more buyers got an opportunity to look at homes last month and are beginning to make contract offers,” said NAR Chief Economist Lawrence Yun. “Sales activity is expected to steadily pick up as more inventory reaches the market, and from ongoing job creation in the economy.”

Pending home sales in the Northeast increased 1.4 percent in March, slipped 0.8 percent in the Midwest, rose 5.6 percent in the South and increased 5.7 percent in the West.

Unusually cold weather and a slowdown in job growth have taken a toll on the housing market in recent months, according to Capital Economics.

But since those factors are temporary, the market seems likely to bounce back, according to the research firm. Recent negative housing statistics are also ”hard to square” with the 11-point increase in NAR’s Realtor confidence index for single-family homes in March, the research firm noted in a report.

In the absence of “an obvious economic explanation for their recent sharp falls, we are expecting the housing market activity data to show an improvement from here,” the report said.

By: Teke Wiggin

 

Inman News

Mortgage Rules Changes Are Coming in 2014

 

The world of mortgage lending has changed significantly since the housing bubble burst. Mortgage lenders have returned to traditional loan standards that require extensive documentation of income and assets for a loan approval.
Government regulatory agencies also continue to react to the housing crisis, with more adjustments to mortgage requirements set to go into effect in 2014:

Qualified Mortgage Rules
Whether you’re thinking of buying a home or mulling over refinancing your mortgage, Jan. 10, 2014, could be an important date for you to remember. The Consumer Financial Protection Bureau is in the process of implementing regulations to meet goals set forth by the Dodd-Frank Act in Congress, which was meant to correct the errors that led to the housing crisis. The CFPB’s "Qualified Mortgage," or QM, rules go into effect in January. Essentially, these rules require lenders to prove borrowers’ ability to repay a loan by meeting several guidelines, including a maximum debt-to-income ratio of 43 percent. While many lenders already limit borrowers to a similar maximum debt-to-income ratio, the new rules won’t allow for any compensating circumstances such as significant cash reserves or a large down payment to be considered in order to offset a higher debt ratio.

If you have credit problems or a high debt-to-income ratio, you may want to push through your loan application for a refinance or home purchase to make sure you close your loan before the new rules go into effect. However, many lenders are already using QM standards in order to make sure they’re in compliance with the regulation. Mortgages that don’t meet QM standards will have to be held by the lender rather than sold to Fannie Mae and Freddie Mac, so most lenders are careful to meet the new standards.

The 3 Percent Rule
The new QM requirements also limit fees for originating a loan to no more than 3 percent of the loan amount. If you’re financing a more costly home, such as a $400,000 home or more, the lender can easily keep fees under 3 percent, which in this case would be $12,000. However, if you’re refinancing a smaller loan balance or purchasing a less expensive home — for example, for $80,000 — the lender might find it more difficult to keep all fees under $2,400. Mortgage lenders are less likely to offer loans for smaller amounts since they won’t always recoup their costs and make enough profit to pay their staff. If you need a small loan, you may want to push to get it closed before Jan. 10, 2014.

Self-Employed Borrowers
One particular group of borrowers will most likely be impacted by the QM rules: self-employed borrowers. These borrowers already are heavily scrutinized and find it more difficult to obtain a mortgage because they must prove their income based on tax returns and profit-and-loss statements, rather than standard paystubs and W2 forms. The “ability-to-repay” feature of QM rules requires all borrowers to prove they have the cash flow to make payments on their mortgage. Self-employed borrowers often have fluctuating income and rely on cash reserves to pay bills in-between payments, but the emphasis on cash flow can make it harder for lenders to approve a loan even for someone with significant funds in the bank.

Potential Lower Loan Limits
The Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, announced in October that plans to reduce the maximum loan limits for conventional conforming loans will be delayed until later in 2014. Typically, loan limits are adjusted on Jan. 1 of each year, but the agency decided to wait to see the impact of the introduction of QM rules before making changes. Currently, the limits are $417,000 in most housing markets and rise to $625,500 in high cost areas. If you need a mortgage near these limits, it would be wise to close your loan earlier in 2014 rather than later in case limits are lowered.

By: Michele Lerner

Why Your Perfect Home Needs Central Air

When you find your dream home, things just click. The closets may be a bit too small, the AC may come from window units instead of a central system and maybe there's no full-time guest room ... But the place just has that magic.

Still, it pays to think about those shortcomings, which could make it harder to sell when you're ready to move on in a few years. To some extent, the housing market is a fashion industry, and today's styles will sell better than yesteryear's.

A study by the National Association of Realtors says central air conditioning is the most critical of 33 features surveyed, with 65% of those polled rating it very important. So if the home doesn't have it when you buy, think about putting it in. You'll enjoy it and will find it easier to sell for the price you deserve.

Among other highly desirable features: new kitchen appliances and a walk-in closet in the master bedroom. Buyers also preferred homes that were less than five years old, which might surprise those who believe in old-time craftsmanship. The fact is, newer homes are better insulated, have safer wiring and are built to withstand winds that would blow older homes apart.

Not surprisingly, buyers would prefer choice sites such as those on the water. They want basements, and many look for a home with an in-law suite. (Of course, that doesn't mean the in-laws will move in. The suite can serve a grown child who's slow to launch, or function as a better-than-average guest quarters.)

Most buyers still want a traditional living room, even though modern life seems to gravitate to the great room.
Asked what they were willing to spend more to get, a majority of buyers said: a laundry room and den/study/office/library.

Many buyers who were satisfied with their home said they would still like more and bigger closets and a larger kitchen. In fact, 47% of recent buyers undertook a major kitchen improvement quickly, and almost as many upgraded a bathroom.

Of course, buyers' demands vary by region and demographics. In the south, as one would imagine, air conditioning is especially important. And older buyers are more likely to prefer single-story homes.
Obviously, there's no simple rule about what will appeal to a future buyer. But today's shopper would be wise to visit a wide range of homes, not just a few suggested by the real estate agent, to get a sense of the styles popular in the community.

Builders have a pretty good sense of what buyers in the area want, so tour some open houses in new developments. If new homes offer stainless steel kitchen appliances, dedicated laundry rooms, finished basements and bedroom-sized closets, you can bet that future buyers will demand those features -- at a minimum.

Keep in mind, though, that many major home improvements don't add as much value as they cost, so it's probably not a good strategy to buy a substandard home and plan to upgrade just before selling. Get a home that has the features other buyers value, or put them in quickly so you can enjoy them yourself before selling.

By: Jeff Brown

Home Affordability Reaches Historic Low as Market Improves

In 2006, during the height of the seller’s market, home prices reached an all-time high. At the time, an interest rate of 6.4% was reasonable. Since then, both home values and interest rates have dropped significantly. The home affordability percentage is the percentage of median family income required for a median price home payment. This year, the United States broke another record with Home Affordability at it’s lowest ever. Today, the home affordability percentage is at 12.9%. The long term average is 21.6%.  Just a few short years ago, this percentage was 23.2% and in the early 1980’s this percentage was as high as 36.3%. 

In 1989, the average home sale price was $94,000.  Today, that average is $176,600.  Yet, the monthly principal and interest payment is nearly $200 a month less today than it was in 1989.  Meanwhile, inflation has caused the price of a new car to nearly double during that time period and the cost of gas has gone up from .97 cents to over $3.54.

Statistics show that the US housing market is slowly recovering. Last year, home sales increased by 9.2% and we have now returned to the 2007 level. In addition to increased home sales, seller inventory has seriously decreased down to 5.9 months of inventory. A balance market is when we have 6 months of inventory. History shows us that we never stay in a balance market long and that it takes approximately 6 months for a market to complete its turn to either a buyer or seller market. These facts cause us to ask the following questions; are we making the turn from the buyer’s market into a seller’s market? And when will we hit rock bottom home prices? These statistic’s seem to prove that we are making the change to a seller market. We will know the  answer to home prices hitting rock bottom when it’s too late.  Perhaps it already is. Interest rates are already on the rise. My recommendation is simple, if you can afford a home and you qualify for a mortgage, you better call me today because tomorrow may be too late.

Article written by: Daniel J. Smith

                                      Statistics provided by NAR

Study: Buyers Can Afford Bigger House If It's New

The National Association of Home Builders says its new study shows that home buyers can buy a more expensive, newer house and still have the same operating costs as owning an older existing home. 

NAHB examined data from the Census Bureau and Department of Housing and Urban Development’s 2011 American Housing Survey to determine how utility, maintenance, property tax, and insurance costs vary depending on the age of a home. 

Houses built prior to 1960 have average maintenance costs of $564 per year. On the other hand, homes built after 2008 have average maintenance costs less than half that — $241, according to the study. 

 

For homes built prior to 1960, operating costs average nearly 5 percent of the home’s value while the average was less than 3 percent for homes built after 2008, the NAHB study found. 

The study also took into account the first year after-tax cost of owning a home by its age, examining the purchase price, mortgage payments, annual operating costs, and income tax savings. “A buyer can afford to pay 23 percent more for a new house than for one built prior to 1960 and still maintain the same amount of first-year annual costs,” according to NAHB.

New houses tend to cost more than existing homes, so the mortgage payments will likely be higher — but the lower operating costs of a newer home will give buyers annual costs that could be about equal if they purchase a lower priced, older home with a smaller mortgage payment but higher operating costs, NAHB says. 

"Home buyers need to look beyond the initial sales price when considering whether to buy new construction or an existing home," says NAHB Chairman Rick Judson. "They will find that with the higher costs of operating an older home, they can often afford to spend more to buy a new home and still have annual operating costs that fit their budget."

Source: National Association of Home Builders

Are You Ready to Buy a House?

Answering these eight questions will help you decide.

 

The idea of owning your home is an exciting one, but how do you know if you’re ready? Before you take the plunge, answer the questions below.

 

What’s your financial situation?

Having a clear understanding of your finances is necessary when you’re considering buying a home. Prior to speaking with a real estate agent, you should make a budget to see how much you can reasonably afford to pay. Don’t forget to factor in the cost of taxes, insurance premiums, maintenance and other upkeep.

 

Can you afford even the initial costs?

Down payment amounts vary based on the type of loan you’re offered or if you’re eligible for a first-time homebuyers’ program, but remember that the more you put down, the lower your mortgage payments will be.

 

Other initial costs can be substantial: loan set-up fees, home inspections, insurance, property taxes and other fees will cost you about 2 to 4 percent of your home price.

 

Is your money organized?

Hopefully you’re the kind of person who balances your checkbook and understands where your money goes, but if you take a more lackadaisical approach to your finances, you’ll need to step up your game. Get organized, check your credit report and keep building your savings. Getting your affairs in order helps you improve your credit score, qualifying you for better interest rates, and good financial records will help you take full advantage of tax deductions.

 

What are your future expenses?

Think ahead to the next few years. Are you making any big life changes that will hit your wallet hard? If you’re planning to have children or start paying tuition soon, you should factor that cost into your decision now. It can become difficult to replace an aging car or take an expensive vacation once you’re paying a mortgage.

 

Do you have an emergency fund?

Before you devote all your savings into a down payment or upkeep for your house, look at the bigger picture. You need to build a financial cushion in case of financial setbacks like unexpected unemployment or serious illness.

 

It’s not just money that should affect your decision to buy a home.

 

Are you flexible when it comes to getting what you want?

Your first home may not have all the bells and whistles you’re looking for. Are you willing to defer on your wish list now in order to have a home of your own? In a few years, you may be able to find a home that better suits your needs, but in the meantime you could also consider fixing up a less expensive home, buying a home with friends or renting out part of your home for additional income.

 

Do you plan to move in three to five years?

There is a lot of effort, time and cost involved in buying a house – you want to make your investment pay off for you. In addition to the price of the house itself, you should also take into the set-up costs already mentioned.

 

If you’re planning to move in a year for work or school, you may want to wait until after that time. Otherwise, you might find yourself in a tough spot if you’re forced to sell your home for less than its purchase price in a slow market.

 

Do you enjoy home improvement?

If you’re already looking at homes, it’s hard not to imagine how adding a fresh coat of paint to the walls or changing the light fixtures will make a house truly yours. But if you’re used to calling the landlord for anything that goes awry in your home, owning a house might be a jarring wake-up call. When you own your house, any issue becomes your responsibility, from replacing blown electrical fuses to installing a new roof.

 

Now is the time to consider whether you enjoy home improvement projects. Are you confident in your ability to patch drywall or install a ceiling fan, or would you rather pay someone else to do it? If it’s the latter, consider that even if you hire someone else to handle your home improvement issues, you will still have to invest not only money but your time by researching contractors and supervising their work.

Taken from: Realtor.com By Tasha Schroeder