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Must-have contingencies in purchase offer
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DEAR BENNY: I am in the process of buying an older single-family home and found one I like. I wanted to have my contract contingent on obtaining a favorable home inspection, but my real estate agent has been discouraging me. She claims that I may lose the house if I insist on the inspection. What do you think? --Terrie

DEAR TERRIE: You are about to engage in what may be the biggest purchase of your life. You kick the tires when you buy a car. You should get an inspection, and if the seller does not allow this, walk away as fast as you can.

Inspections help both buyers and sellers. The buyer gets an independent assessment of the condition of the house, from inside and outside, and top to bottom. There is a hidden benefit to an inspection, namely that if you buy the house, you will know where things are such as turning off the water in case of a leak.

But the seller benefits also. I have represented many sellers whose buyer (after taking title) threatened to (and actually did) sue the seller, claiming multiple problems in the house. My defense, which generally works, is, “Hey, you had an inspector and had an opportunity to walk away if you found problems.”

So, submit your contract with the inspection contingency. If the seller rejects it, he may be trying to hide known defects.

Also, many states require sellers to disclose all known problems in a house to potential buyers. If your state has this requirement, show the disclosure statement to your inspector.

The bottom line: There are two important contingencies that must be included in every real estate offer being made to sellers. First, a contingency on financing (assuming you need to obtain a mortgage and are not paying all cash). Second, obtaining a home inspection report from an independent inspector selected by you, to your satisfaction.

Don’t be pressured to sign a contract without these two provisions. In law school, we are taught that real estate is unique. In my many years of practicing law, however, I have learned that it “ain’t necessarily so.”

DEAR BENNY: Years ago our dad built a cabin in Colorado and left it to the five children from two marriages. Since that time, four of us have split the expenses of maintenance, taxes and insurance. We have a large family reunion at the cabin every four years, and family members use the cabin annually. One brother has never contributed and is difficult to locate when needed.

The four of us are getting older and would like to keep the property in the family, as everyone enjoys the use of the cabin and the reunions. There are 12 children from the four of us plus two from the brother who does not participate. What is the best option for keeping the cabin in the family and splitting the costs involved? --R.J.

DEAR R.J.: The first question is how all five of you hold title to the cabin. There are two ways: first, each of you could hold title as “tenants in common,” meaning that each has a one-fifth interest. While it may be difficult to find a buyer for that small portion, as a tenant in common you have the right to sell. In this arrangement, on the death of any one of the tenants in common, your share will be distributed accordingly to your last will and testament (which you should have). And in many states, probate will be necessary.

Alternatively, you all could hold title as “joint tenants with rights of survivorship.” Here, if one of you dies, the remaining four siblings will then own the entire cabin. This is not fair to the spouses or to your children who may lose the right to have any ownership. (I am ignoring for this discussion spousal rights to claim an interest despite any provisions in the will.)

So, just for this issue alone, you should consult an attorney who will review the title and advise you the best way to deal with this. My suggestion: “Title is held by each of the children and their wives as joint tenants with rights of survivorship, but as to each of the other children, as tenants in common.”

What does this accomplish? If one of you should die, your spouse will automatically inherit your one-fifth interest in the cabin. If your spouse predeceased you, you will be the sole owner of your share and can arrange to leave it to your children on your death. But since you own your one-fifth interest as tenants in common with your other siblings, they keep their interests and you do not lose yours.

But talk to your attorney. She may recommend that you create a limited liability company to hold title to the property.

As for the brother who does not make payments, you can ignore it from a family point of view, or you can demand that either he pay his fair share or sell his interest to the remaining four of you.

DEAR BENNY: We are California residents who own an investment property in another state. The property is a condominium unit in a new, quiet, well-maintained, 12-house subdivision. We bought this property in a 1031 exchange as a rental property, leased it to a quiet family, have been collecting rent with no issues, and we take a modest loss annually.

The condo documents stipulate that a maximum of four homes out of the 12 total may be rented at any time. We knew this when we purchased and were allowed to put the home into rental service from day one. Currently, there are five rentals in the subdivision, including ours, which was among the first to be established as a rental.

This week, the association’s board of directors sent out a letter to all the owners stating that it intends to enforce the “maximum four rental unit limit.” Our long-term tenant is vacating this month and we recently signed a sales contract to sell it due to changing family, health and financial circumstances, just prior to receiving the letter from the HOA board.

We believe the board hopes to take our unit “out of service as a rental,” bringing the total rental units back down to four, when the unit sells.

What happens if we can’t sell this property and wish to put a renter back into the house until the market recovers? Can a community association force an out-of-state owner to keep the property empty while losing money on a monthly basis because it suddenly decides to enforce its rules after three-plus years?

The house will be empty in a week, which we thought would help during the sales process, but now we’re really worried about the board changing the status of the property just because the current renter moved out and it’s on the market. This feels like a “double jeopardy” situation to us. --Nanci

DEAR NANCI: Unfortunately, you will not like my response. Basic community association law throughout the country is that owners in a community (whether it be a condominium or a homeowner association) are bound by the terms and conditions of the legal documents as they existed at the time of purchase, and as they may be properly and legally amended from time to time.

In your case, you admit that you knew that the documents contained the four-unit max.

And case law is also clear that a new board has the right to a “clean sweep,” so long as it is not arbitrary or capricious. In other words, even if there were violations in the past (in your case, previous boards allowed five units instead of four), the board has the right to say, “OK, we are going to start enforcing our legal documents.”

You ask if the board can force an out-of-state owner to keep the unit empty. The answer is yes, but whether in- or out-of-state is irrelevant. The board has the right (indeed the obligation) to enforce its rules against any owner whether he or she is in the state or not.

You should, of course, discuss the matter with the board. Explain that you were the first to rent, and should not be penalized now based on previous boards ignoring their own rules. More importantly, does the board have a rental waitlist? How does the board determine who can rent and who cannot?

Perhaps your best argument is to challenge the board if it has not established such a waitlist. Remember that I said a board cannot be arbitrary or capricious in its enforcement of the legal documents. In my opinion, if the board does not have a policy as to who can rent, then it is being arbitrary.

You may have to talk with a local attorney about these issues.

 

Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to benny@inman.com.