BREACH of CONTRACT

Every real estate purchase agreement normally requires the Buyer to open escrow with 3% of the purchase price.  This money has two functions:
1. initial deposit, to be credited toward the purchase price
2. maximum amount for liquidated damages in case the Buyer defaults
But what really happens if the Buyer defaults or breaches the contract (fails to complete the purchase)?  Is the 3% deposit automatically given to the homeowner?  No!  Even when all principals have signed the Liquidated Damages provision in the purchase contract.

The Damages clause is an agreement, in advance, to what the Seller is entitled, and which states "Seller shall retain the deposit".  The main purpose of the Damages clause is:
- to cap the amount a Buyer may owe in the event of a breach
- to provide the Seller with the maximum liability a Buyer may pay in case of default.  But, release of the deposit to the Seller is not always a given.

Once the Buyer removes, in writing, all their contingencies (inspection, loan and appraisal approval, etc.) they are locked into the purchase.  However, should the Buyer not close escrow, each transaction is reviewed separately as to the "harm" caused in the situation:
- did the property value decline in value during the escrow?
- did the Seller find another Buyer to pay more for the property?
- did the Seller incur added expenses as a result of the breach?  This is the point where the Mediation/Arbitration provision may kick in.

Non-refundable Deposit
Even with a non-refundable provision in the contract, the Seller may wind up returning all the money to the Buyer if no actual damage was suffered.
Per Diem Charge
When a Buyer requests an extension to close escrow, a daily fee can be charged.  Or, when a Buyer is asking for an extension, releasing the 3% deposit can be a non-refundable agreement, but applied to the purchase price if escrow closes.  This is a more enforceable act when giving, and getting, something in-return. 

A typical three-bedroom, single-family home in CA uses about 174,000 gallons of water a year.  There is no disputing that last winter's lack of rain caused an extra burden on CA's ongoing water supply issues.

Effective January 2014 the City of Los Angeles required that any sold home must close escrow with (even lower) low-flow toilets than the 1999 mandate (Code #172075).  The law now requires toilets to use only 1.28 (was 1.6) gallons of water per flush, deemed high-efficiency.  Also, every sold home in L.A. must include water saving shower heads by showing proof with a Certificate of Compliance (the installation cost is negotiable, but the Seller is ultimately responsi- ble).  There may be only one exception to the law and that is if the home sold is a registered historical property.  Plus, the law states no more putting the onus on the Buyer to install after they take possession.  Water-saving devices must be installed prior to escrow closing even if the house is to be remodeled or torn down.  The City states the Seller may be fined, a "percentage increase of their last water bill" (penalty is still undetermined).  But, what is wrong with this law?

When I spoke to a manager at L.A. DWP to discuss their Dec. 2013 memo, he agreed that I found several flaws in the mandate, including:
- no City Inspector can possibly keep track of every pending escrow
- no City Inspector is going to inspect the home prior to closing
- no actual fine has been determined for non-compliance
- no escrow officer can stop the sale from recording with a certificate
Most importantly, after the Seller moves, how or why would they pay the penalty?!!  

Sellers do not fear; this too can be negotiated.  Have the Buyer pay for installation prior to the close.  If that is agreeable, escrow must create a "hold harmless" agreement, prior to the work, as the Buyer does not own the home but is taking responsibility.

According to CA Senate Bill #407, by January 1, 2017 all residential properties in CA, built prior to 1994, will be required to retrofit with:

They're back!!  Those toxic, adjustable-rate mortgages, like exploding ARMs, that led many borrowers to lose their homes to foreclosure during the housing bust, have returned to the market place.  A handful of small lenders (Skyline of Calabasas CA) are once again starting to offer subprime loans to borrowers who pose a higher risk, such as a credit score below 640.  This time, the loans are much more costly.

During the housing bubble, lenders were issuing subprime loans with cheap teaser rates and little or no down payments.  Now, lenders are charging interest rates as high as 8%-10% and as much as 25%-35% down payments.

Borrowers with bad credit who are trying to rebuild their score, or young, first-time home Buyers with no credit history find paying the premium price is worthwhile.  Most of these would-be homeowners have nowhere else to turn.
Freddie and Fannie, which back 80% of all U.S. home loans, won't back subprime loans.  Only the Federal Housing Admin. (FHA) continues to support low-credit score borrowers, but with hiked fees and premiums.

Other new caveats, issued by the Consumer Financial Protection Bureau, include:
- loans can not carry interest rates that increase after default
- no prepayment penalties
- lenders must provide home ownership counseling from a rep approved by the U.S. Dept. of Housing and Urban Development

Wells Fargo recently lowered the minimum credit score it requires of borrowers to get FHA loans to between 600 and 640.  Lenders, in their benevolent fashion, will gladly refinance subprime loans into lower rate loans once a borrower demonstrates they can regularly pay on time  and their credit score improves.  Wonder what they charge for a re-fi?!!

How a typical CA family uses water in their home:

- 4% flushing toilets

- 4% washing clothes

- 9% kitchen and bathroom faucets

- 9% over-watering landscape

- 17% showering

- 57% watering landscape

 

What does it mean when a Buyer submits an offer in their name plus, "and/or Assignee"?  Prior to the close of escrow a Buyer may want to transfer ownership or take title in a different name, or entity, that was on the purchase contract.  For example: a Buyer may want to add their spouse to the title or put the property into a family trust.  Another example is a Buyer who may take title to the property in a newly created LLC (limited liability company), which includes a group of partners.  Or, if one of the original Buyers can not qualify for a loan, the lender may require that he/she be removed from the transaction, but later added to the deed.  Whatever the "vesting" (the right to convey) the Buyer should state their name in the purchase agreement and add "or Assignee".
What does this mean for the Seller?  Since the Buyer named in the purchase agreement is the only one vetted as to their ability to qualify for a mortgage or to their sole access to the proof of funds, the Seller's agent needs to:

Fleur De Lys pics 350 N. Carolwood

Sold!  ALL CASH! $102 Mill exactly five years to the day from  listing.

How have condo median prices in your area fared in the first quarter of 2014 vs. 2013?