Predatory lending:

There are companies who are involved in what is known in the industry as 'predatory lending.' Predatory lending involves usurious interest rates, very high prepayment penalties and similar high and unnecessary fees. If you are involved in a mortage process and fear that the company is charging too much interest or requiring you to pay unnecessary insurance premiums, you may contact the Dept. of Financial Institutions, your local Housing & Urban development branch or your local county government office to file a grievance and launch an investigation.

In addition, you should never sign a closing (HUD-1) statement that does not accurately reflect the actual transaction that took place. This statement shows the federal government exactly how much money changed hands for tax and other purposes. It is a federal bank fraud violation to sign an inaccurate form. If a mortgage company asks you to re-write a contract using a different sales price or different terms than you agreed to, you should walk away from that deal. Moreover, it is a felony to file a deed that does not accurately state the actual purchase price of a piece of real property.

As a consumer, it is not in your best interest to purchase a piece of property that you cannot afford. Over 80% of properties that involve predatory lending result in foreclosure. The goal of home financing is to find a property that you can afford so that you can live there, build up equity and enjoy piece of mind. This is also the reason finance companies have underwriting standards. Their accountants and actuaries have determined how much a particular consumer can afford based upon proven ratios and other information. To try to avoid these standards and purchase a home that is above your price range will eventually lead to problems.

Home Inspections:

Perhaps one of the most important protections a buyer and seller can have in a home sale or purchase is a whole-house home inspection. In addition, you should have a termite or wood-destroying insects inspection and any other type of inspection that your particular property may require.

Many buyers want to save a little money by waiving their right to a home inspection. The Real Estate Commission advises against such a decision. There are numerous aspects of a property that may need to be repaired or replaced. The seller may not even know of some defects and may not, therefore, be able to disclose them to you.

Likewise, your real estate agent cannot guarantee that a property is free from defects. A listing agent only knows as much about the property as the seller has disclosed and as much as he or she can see with his or her own eyes. Most realtors are not certified home inspectors. Most sellers do not even know all of the potential problems with their homes. Finding and hiring a qualified inspector is the best way to protect yourself and your investment.

Surveys:

An additional way to protect yourself is to ensure that your property lines are where they should be and that there are no encroachments on your property. The only way to verify acreage and encroachments is through a survey. The Commission strongly recommends that buyers obtain a staked survey prior to purchase. If you do not obtain a staked survey, you should, at the very least, obtain a mortgage survey.

Financing Options:

There are numerous financing options available for consumers in Kentucky. First-time home buyers who meet certain income qualifications can apply for a loan through the Kentucky Housing Corporation ('KHC'). In addition, veterans of the United States armed services may be eligible for a Veterans Administration ('VA') loan. The federal government also subsidizes certain Federal Housing Administration ('FHA') loans for which certain buyers may qualify.

There are also many zero down payment programs and down payment assistance programs (e.g., New Homes Gallery, Nehemiah, etc.) that may be available to buyers.

The wisest thing to do would be to obtain financial counseling regarding how much, and what type of a loan you qualify for. In addition, shop around for the best rates. These rates also include the closing costs, the points that you may be charged, origination fees, etc. For example, one lender may have a lower interest rate, but higher closing fees, etc.

Financial institutions are required by law to provide you with a good faith estimate of your charges. In addition, they are required to provide you with a closing statement (HUD-1) at least 24 hours prior to closing that outlines exactly how much each party is required to pay and how much the total fees will be. If you find discrepancies in this statement, you should contact the closing agent or attorney.

Please understand that the closing attorney is generally present to represent the interest of the finance company/lender. The closing attorney does not represent the buyer, even though the buyer has chosen the finance company. If you want legal representation at the closing, you should hire your own attorney.

Arbitration & Mediation:

Many real estate purchase and listing contracts have provisions for arbitration and/or mediation of any disputes that may arise under that contract. Arbitration and mediation are not synonymous. They are both alternate dispute resolution methods. They serve as an alternative to civil court.

Arbitration is a process in which a neutral party, the arbitrator, presides over a formal hearing to determine whether a contract has been breached, whether there has been fraud, etc. The decision of this arbitrator is usually binding, meaning there is no appeal to a higher court and the decision is final once issued.

Mediation is a process in which the parties come together with a neutral facilitator to try to fashion their own resolution to a dispute. The mediator is there to assist the parties in reaching a compromise, but is not there to be the ultimate decision maker in the dispute.

It is important to understand these distinctions, and to understand what you have to agree to, before signing any contract. If a dispute arises under your contract, you are bound by the terms of that contract, including using the alternative dispute resolution method agreed upon in the contract.

Title Insurance:

When you finance a property, the mortgage company will usually obtain title insurance to secure the mortgage company's interest in the property. The mortage company's title insurance does not protect you as the buyer. If you want to protect yourself and your interest, you must purchase a homeowner's title insurance policy.

Oral Negotiations:

In Kentucky, a contract for the sale of real property must be in writing to satisfy the Statute of Frauds. Oral negotiations or oral contracts are not binding on either party. If you and the other party have agreed upon a price, etc. over the phone and one party changes his or her mind, there is no deal. Make sure you have each and every negotiation reduced to writing and signed, dated and timed by all parties. Until you have that accomplished, you do not have a binding contract.

Likewise, once the agreement has been signed by both parties and communicated back to the last offeror that it is accepted without any changes, the agreement is binding. There is no 3-day right of recission for a purchase or a listing contract. If the parties want to void the contract after acceptance, then it will require a mutual release signed by both parties.

Agency:

An agent is someone who represents your interest. If a real estate licensee represents you as an agent, then certain fiduciary duties attach to that representation. The fiduciary duties owed to a client are: disclosure, loyality, accounting, confidentiality, reasonable care and diligence and obedience to lawful instructions.

An agent could also represent another party in a deal and you may be unrepresented. In this case, you would be treated as a customer. A customer is to be treated with honesty and fair dealing; however, the other fiduciary duties mentioned above do not apply.

The types of agency available in Kentucky are as follows: seller's agent, limited dual agent, designated agent or transaction broker. The Commission has a document entitled 'Agency Information for Consumers Bulletin' that outlines these agency relationships in detail.

Limited Dual Agency:

Oftentimes, a buyer will work with the agent who has listed a piece of property for sale. If the agent only represents the seller, the agent will disclose this agency relationship to you in writing through a Commission-approved Agency Disclosure Form. In this instance, the buyer would be a customer, not a client. If the agent has a consent of both parties to act in a limited-dual-agency capacity, then the agent will be representing both the buyer and the seller in a limited way. Once the agent represents both sides of the deal, the agent cannot perform as many of the actions or duties as he or she could when reppresenting only one party. For instance, the agent cannot try to get the highest price for the seller while also getting the lowest price for the buyer. Remember: An agency relationship requires both knowledge and consent. You have the right to be represented by whomever you wish.

'Time Is Of Essence'

In general, the dates and times outlined in a purchase contract are not set in stone. Since the purchase of real estate is a long term proposition, the law favors allowing the contract to go forward, rather than holding the parties to strict dates and times. So, if the closing date in your contract states that the closing must occur by a certain date, the contract is not automatically void on that date. To the contrary, both parties still have a 'reasonable amount of time' to pursue and close the deal. The reasonableness of the time depends upon each circumstance and cannot be determined by anyone other than a judge, jury or arbitrator.

If you want to ensure that each time and date in your contract is set in stone, the legal term is 'time is of the essence.' If 'time is of the essence' as to the closing date, for example, then the contract will become null and void once that day passes if the closing has not yet occurred. A word of caution: Do not use the phrase 'time is of the essence' unless you are certain. Oftentimes, unforseen events relating to inspections, bank appraisals, etc. occur that delay the closing date by a short period of time.

Megan's Law:

Kentucky has adopted a sex offender registry law, commonly known as Megan's Law. Under this law, all sex offenders are required to register with the local sheriff's office upon moving into a particular neighborhood. If this is a concern, visit the KY State Police website or the local sheriff's office.

Stigmatized Properties:

There is no specific stigmatized property law in Kentucky. If you want to know whether there has been a murder, suicide, violent crime or ghost in a particular home, you must ask the question. Once asked, the seller or the seller's agent must disclose the information. However, without being asked, there may be instances where the seller has not disclosed such information, and by law is not bound to disclose.

Likewise, as a seller, you must determine whether a murder, suicide, violent crime or ghost in your property has created a stigma and therefore a defect. If it is the reason that you are moving, you may want to disclose it, as that has become a stigma to you. My advise would be to disclose it anyway, as it is always better to have a knowledgeable buyer rather than one who feels duped after the closing. Buyers will find out the details of the property from neighbors or others once they move in, so it seems wise to disclose all known facts about the property. 

Good Credit:

It is important to maintain good credit in order to qualify for a mortgage to purchase real property. Once you have purchased a property, it is equally important to keep your mortgage payments current and to make sure that your property is at all times properly insured. If you fall behind on your payments, contact your bank immediately and set up a meeting to discuss alternative payment schedules, etc.