| Have you ever wondered if your agent and loan | | | | seller is looking at losing the proceeds from |
| officer are doing something that could get | | | | the sale. So, they have you sign a side |
| you into trouble? | | | | agreement. The seller supposedly will give |
| | | | you a check after close for the furnace or |
| You should! | | | | have someone replace it after the close. |
| | | | |
| Buying a house is a complicated process and | | | | This happens all the time. The agents and |
| many times your lack of insider knowledge can | | | | loan officer involved in the transaction |
| get you in hot water. | | | | would sooner cut off their right arm then |
| | | | lose a commission because of a faulty |
| Shouldn't the agent and loan officer be | | | | furnace. Here is what could happen to you |
| putting your best interest first? | | | | ,the buyer, when a side agreement goes wrong. |
| | | | |
| Of Course!.....but unfortunately, it does not | | | | 1. The seller never gives you any money for |
| work out that way. The deal/transaction gets | | | | the furnace or they give you a check that |
| put first.....the part where the agent and | | | | bounces. |
| loan officer both get paid. Once the agent | | | | |
| and loan officer have started working on a | | | | 2. The furnace is installed after the close |
| transaction, they don't want anything to get | | | | by the seller's choice of contractors. Of |
| in the way of the commission when it closes. | | | | course they will want to get the cheapest |
| It may be in your best interest to get out of | | | | contractor they can find because it isn't |
| the contract and not buy that home but the | | | | their house anymore. The furnace get |
| agents and loan officers are lazy and don't | | | | installed incorrectly or during installation |
| want to do the right thing. They want to do | | | | something else in your new home gets |
| the easy thing. In this case, the easy thing | | | | destroyed and you have to pay for that since |
| is fraudulent and unethical. | | | | it is your house now. |
| | | | |
| I know while you are out looking at houses | | | | 3. The lender finds out about the side |
| you have a million things to think about. In | | | | agreement and now calls the note due and |
| my experience, the inspection is something | | | | payable. |
| that can really be confusing if you don't | | | | |
| know how to handle it. More importantly, you | | | | If running the risk of depending on the |
| will be committing loan fraud without the | | | | seller and the agents for money isn't bad |
| proper counsel. | | | | enough, think of it from the lender's side. |
| | | | They are the ones lending the money for your |
| Usually, after you write a contract on a home | | | | new home. They have a right to know that the |
| and it has been accepted, you as the buyer | | | | collateral is not what is represented in the |
| have a home inspection done. The inspection | | | | contract. Even though the inspection is not |
| is different than the appraisal. The | | | | a part of the mortgage process, the lender |
| appraisal is done to establish the value of | | | | doesn't contract to lend on a house that |
| the home. Appraisers will inspect the home | | | | needs expensive repairs. Not only did you |
| also. The appraiser will measure rooms to | | | | overpay but the lender get cheated too...it |
| verify square footage and note the condition | | | | is called loan fraud. |
| of the home while they are in there. If they | | | | |
| find any major problems that affect the | | | | Just because I mention the agents most of the |
| soundness of the home, they will report that | | | | time does not mean the loan officer is off |
| in the appraisal. The appraisal is submitted | | | | the hook. They are supposed to protect the |
| with the other loan documents to the lender. | | | | lender from any fraud and in the case of side |
| | | | agreements. What they are basically saying |
| Even though the inspection is not a | | | | to the agents is, "I don't want to know about |
| requirement for the loan, every buyer should | | | | what you are doing just get it done so we all |
| get an inspection. You as the buyer need to | | | | can get paid". The loan officers are just as |
| know if the property is in satisfactory | | | | guilty as the agents. |
| condition and therefore worth what you are | | | | |
| going to pay for it. You also want to make | | | | The Maine Creditor Update which is the |
| sure the seller isn't hiding anything from | | | | newsletter for the Office of Consumer Credit |
| you. Buying a house and then having to spend | | | | Regulation has an article in it from its |
| hundreds or thousands of dollars fixing | | | | September 2004 issue. |
| things the seller didn't want you to know | | | | |
| about is not the dream of home ownership most | | | | It states, "Buyers and sellers of residential |
| people think of. | | | | real estate will sometimes agree to "side |
| | | | deals" in which money changes hands to cover |
| So, if the inspection report is not a part of | | | | the cost of needed repairs or defects |
| the loan process....how could you commit loan | | | | discovered on the property. However, if |
| fraud? | | | | these adjustments are substantial enough to |
| | | | affect the value of the residences being used |
| If there are problems identified from the | | | | as security for loans to the buyers, and if |
| inspection the buyers can either decide they | | | | the side deals are not reflected in the HUD-1 |
| do not want the property in that condition or | | | | closing statement, then all parties to the |
| request the sellers fix the problems before | | | | transactions (including the settlement agents |
| closing. The agents must have the buyer and | | | | and the real estate agents) should carefully |
| seller agree in writing on any repairs inside | | | | review their participation to determine |
| the contract. Unfortunately, the agents like | | | | whether legal or ethical principles are being |
| to have what is called "side agreements". A | | | | violated. |
| side agreement is an agreement that is not | | | | |
| part of the real estate contract. The | | | | In any FHA-insured loan, the buyer, seller |
| contract should be agreed upon by all parties | | | | and settlement agent each sign statements |
| and should have all information true and | | | | attesting to the accuracy of the figures |
| correct. With a side agreement, there is | | | | being used. Knowledge of a substantial side |
| information that is withheld from some of the | | | | agreement not reflected in the HUD-1 would |
| people involved in the transaction. The | | | | almost certainly violate these |
| lender who is loaning you the money to buy | | | | representations. Maine law does not contain |
| the home and the title company who is | | | | specific provisions prohibiting undocumented |
| supposed to be the gatekeeper for all the | | | | side agreements, such as the one enacted in |
| documents to transfer title correctly are the | | | | Alabama which states that a real estate agent |
| one left out. | | | | may lose his or her license for |
| | | | "misrepresenting or failing to disclose...the |
| Let's say there was a problem with the | | | | true terms of a sale of real estate" (Ala. |
| furnace on the home you were under contract | | | | Code, sec. 34-27-36(a)(21). However, parties |
| to buy. You tell your agent you want the | | | | to Maine transactions should not assume that |
| furnace to be replaced because the inspection | | | | the absence of a state law here means that |
| report says it is unsafe. Your agent already | | | | such deals are permitted on mortgages headed |
| knows the seller does not have the money to | | | | for the secondary market, especially when the |
| fix the furnace until after they get the | | | | loans will be held or guaranteed by |
| proceeds from selling the house. How does | | | | government or quasi-government entities." |
| your agent know that? Agents talk to each | | | | |
| other all the time without you knowing it. | | | | If you are going to agree to anything you |
| Most agents technically work for the seller. | | | | always do it in writing in the contract. |
| That means they share information with the | | | | That is what contract amendments are for. |
| seller's agent all the time. They work | | | | Real estate is all about the contract. You |
| together to get the deal done and if it is | | | | can't un-ring a bell. Even though the only |
| not in your best interest, then so be it. | | | | thing the lender saw was the appraisal and it |
| | | | didn't uncover a faulty furnace, the problem |
| The seller does not have the money to make | | | | is now out in the open and you have to deal |
| the repairs before the close. The agents | | | | with it. You are ultimately going to pay for |
| will have the you and the seller sign a side | | | | the home and keeping a level head about right |
| agreement stating either: | | | | and wrong is important. |
| | | | |
| 1. the seller will write you a check after | | | | Do not let anyone talk you into signing a |
| the close for the repairs or | | | | side agreement. You now know that it is not |
| | | | in your best interest and it is unethical and |
| 2. the seller will hire a contractor for the | | | | fraudulent. |
| repairs after the close | | | | |
| | | | Tips |
| The problem with these side agreements is | | | | |
| they always favor the seller and more | | | | 1. Always get your inspection done early. |
| importantly, they are loan fraud. | | | | Make it one of the first things you do after |
| | | | your contract has been accepted. The agents |
| For example, the inspection states the | | | | usually try to push this one until the end |
| furnace needs replacing. Your agent is | | | | because they are already afraid something |
| supposed to present the seller's agent with a | | | | will be wrong and they figure the farther you |
| contract amendment stating the seller will | | | | are down the road, the more you will agree to |
| have a licensed contractor install a new | | | | things that are not in your best interest. |
| furnace before closing. The seller will | | | | Get it done as fast as you can. |
| either agree to that and sign the contract | | | | |
| amendment so it becomes part of the contract | | | | 2. Don't use the agent's inspection company |
| or not agree to that and you now have a | | | | or anyone they suggest. Find one on your |
| decision to make. Do you want to buy a house | | | | own. If you now know that agents will use |
| that it supposed to be in good working order | | | | side agreements not in your best interest, |
| at that price when you know now from the | | | | then you also should know that they will use |
| inspection it isn't? | | | | inspection companies that won't deliver a |
| | | | true picture of the problems with the home |
| But like we discussed earlier, the agents | | | | just get the deal done. |
| both know the seller does not have the money | | | | |
| to pay for the furnace. The agents are | | | | Good Luck in your House Hunting! |
| looking at losing their commissions and the | | | | |