real estate purchase
Real estate investor partners: Is your word good enough?
With prices appreciating, and loan rates and inventory low, there is an increased willingness to own real property by two or more investors who need to combine their capital and/or credit to participate in buying, and flipping or renting the property. Often, the investors’ focus is on selecting the property or raising the down payment, with little or no consideration for what happens if co-owners disagree, one wants out, or the optimistic expectations are not realized.
A popular formula in the current flipping frenzy is for one investor to obtain the loan because of a superior credit rating and taking title, while the silent investor contributes funds for the down payment, and perhaps occupies the property as a de facto tenant paying “rent” as the monthly mortgage payment, and sharing the insurance, taxes, and other costs of the property. This allows the purchase and investment by investors who could not otherwise participate by themselves, and increases the number of players in the market. Continue reading
Q: I have a residence that I have been renting and I want to sell it, delay payment of the capital gain tax, and then purchase an office building. Can I use a 1031 tax deferred exchange to delay payment of the tax I would otherwise have to pay?
A: Subject to the extensive tax code and rules and regulations of the IRS, the use of an exchange of property under section 1031 of the tax code should be considered as a method of delaying payment of the capital gains tax owed on the proceeds of the sale of relinquished property. However, it is a relatively complex transfer of real property that has significant tax issues, and the advice of a qualified and trustworthy accommodator should be sought before making a decision about using a 1031 tax deferred exchange. Continue reading
Q: As a broker representing a seller of a single family home who has been leasing the property, what should I be aware of during the sale transaction and how can I ensure that my client will not have any legal issues with the buyer regarding the tenant?
A: A property that is listed for sale when occupied by one or more tenants presents special issues that must be recognized and addressed during the negotiations with both the buyer and the tenant. The California Association of Realtors residential purchase agreement (“RPA”) provides in paragraph 5‐C that with respect to tenant occupied property, the property shall be vacant at least 5 (or other designated days) prior to close of escrow, unless otherwise agreed in writing. If the seller is unable to deliver the property vacant in accordance with rent control or other applicable law, the seller may be in breach of the RPA. Therefore, when representing a seller of property occupied by a tenant, any offer in the form of the standard RPA should be countered with a provision that addresses the terms under which the seller is able to have the property vacant during the escrow if the standard provision cannot be complied with. Continue reading
Q: Because my wife and I cannot afford the down payment on our first residence by ourselves, her father has offered to provide 100% of the down payment so long as he is a co-owner of the property and can share in any appreciation in value of the property, and we make all of the mortgage payments. What options do we have in specifying how the grant deed to the property should be prepared to provide my father-in-law with a recorded interest? Continue reading
Q: I am a first time home buyer and my agent mentioned that I may want to request “contingencies” in addition to those provided in the standard residential purchase agreement because of the characteristics of the type of homes we have been researching. What are contingencies and what should I consider in determining which contingencies to include in my offer? Continue reading
Q: I am considering selling my home and then purchasing a new home. Because of the amount of information I can obtain on the internet about selling and buying real property, do I really need a broker who I will have to pay a commission to?
A: It is not uncommon for many sellers and buyers of real property to have misconceived notions about the utility of using a broker to handle the selling and buying of real property, especially if they have not been involved in prior transactions. Some sellers believe that the broker’s function is limited to finding a buyer, and buyers tend to believe that the broker’s role is limited to finding a property. But such limited views do not recognize the many valuable functions that brokers can provide, and the benefit of a broker may not be realized until after serious and negative legal consequences have occurred. Continue reading
Q: I purchased a home that has a pool and the seller’s agent informed me that there did not appear to be any visual defects, and my own agent told me that he was not aware of any problems with the pool that I should insist on being repaired before the close of escrow, even though the pool was only half full of very dirty water and it did not appear to have the filter equipment operating for some time. I did not insist on filling the pool up or checking its operation and after I purchased the house, I learned that the overflow pipe discharged onto the slope below my house that is off my property, and the city has required me to install a sump pump overflow system at significant cost. Do I have any rights against the seller’s agent or my own agent? Continue reading
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Q: I entered into a residential purchase agreement and during the contingency period, I determined that I would not be able to develop the property the way I want to because of the zoning restrictions. I gave timely notice to the seller of the exercise of my right to cancel the agreement, but the seller has refused to sign the document the escrow company says it needs to cancel the escrow and return my deposit. What can I do to get my deposit back?
A: In the California Association of Realtors residential purchase agreement (“RPA”), a buyer has a certain period of time to perform investigations of the property and provide the seller with a notice of the buyer’s cancellation of the contract. If the buyer gives written notice of cancellation pursuant to the rights of the buyer under the RPA, both the buyer and seller agree to sign mutual instructions to cancel the sale and escrow and release deposits back to the buyer, less the fees and costs incurred. The RPA provides that release of the funds will require mutual signed release instructions that are typically provided by the escrow company handling the transaction. Most escrow companies will require the execution of such instructions, in the form of amendments to the escrow, to disburse the funds being held by the escrow company event if it appears that the buyer has a clear right to the money on deposit. Continue reading
Q: I have not purchased a home for many years and my agent mentioned that the California Association of Realtors has revised the standard residential purchase agreement. Is this true and how has the agreement been changed?
A: The California Residential Purchase Agreement and Joint Escrow Instructions (“RPA”) has not been changed for many years, but a new version has been issued by the CAR effective April 2010 that makes several significant improvements that should help to make the agreement easier to use and understand. Some of the improvements are to the order of the paragraphs and others are to the content of the provisions. The RPA constitutes an offer and if it is accepted without any counter‐offers, it will constitute a binding contract. Therefore, it is the most important document in the transaction that is supplemented by the other forms in the transaction.
The RPA is prepared by the buyer of the residence, usually with the assistance of an agent. The agency relationship paragraphs have been moved from the end of the RPA to the first page, and this is important because the disclosure and confirmation of the real estate agency relationships is one of the more problematic issues in the transaction, especially if a single agent is representing both the seller and buyer. By moving the agency paragraph to the first page, it assists both the seller and buyer to confirm their respective agency relationships prior to completing the other sections of the RPA. Continue reading
Q: I represent a buyer in a transaction where the seller has refused to close the escrow and has threatened to sell the real property to another buyer. The purchase agreement requires mediation of the dispute and the parties have agreed to arbitration, but what can be done to impede or prevent the seller from selling the property while the mediation and arbitration are pending?
A: Although the standard California Residential Purchase Agreement requires an attempt to mediate any dispute between the buyer and seller as a condition of recovering attorneys’ fees and may require arbitration to resolve any disputes, a court action is allowed to enable the recording of a notice of pendency of action, also known as a lis pendens, in order to preserve the status quo pending a resolution by the mediation or arbitration. Upon recording the lis pendens, notice of the legal action is provided to all persons who may search the title to the property, including prospective buyers. Continue reading