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Real Estate Matters

12/9/2006

Proving seller lied on disclosure forms takes work

Q: My husband and I purchased a home nearly two months ago. The seller disclosure form stated that the owners had no water or leaks in the basement. We bought the house with the intent to finish the basement for additional living space.

In the two months we’ve lived there, the basement has had some water and today, the basement flooded with at least 6 inches of water.

During his inspection of the home, the home inspector noticed the basement was recently painted and did comment that this was suspicious. However, he couldn’t say for sure whether there had been any water in the basement recently.

The house does have two sump pumps that work, but water is still coming in. We think the sellers lied on their disclosure form. We were suspicious about other things that were more minor, but loved the house and neighborhood.

We’ll have to do some serious work to make the basement space usable and keep our belongings dry. Do we have grounds for suing the sellers?

A: Unless you can prove that the sellers knew or should have known that the basement leaked, it may be tough to sue and collect damages. You’d have to find a smoking gun, like making contact with a contractor who attempted to fix the problem, finding the painters who worked on the basement and could tell you about any water stains on the walls, or turning up some evidence that the basement leaked repeatedly. Consult a litigation attorney with experience in seller disclosure issues for a review of your legal options.

Q: I’m looking for a condominium and have come to the conclusion that I won’t have 20 percent of the purchase price saved before I buy. Could you list some of the mortgage options that would allow me to avoid paying private mortgage insurance (PMI)?

A: Most first-time buyers don’t have 20 percent to put down on a home. While PMI exists to help get people over that 20 percent hump, it is expensive and you can’t write off the amount you spend on PMI under current tax law.

Instead, look into a piggy back loan, also known as an 80/10/10 (80 percent first mortgage, 10 percent second loan, 10 percent down). The 10/10 part can be adjusted to cover whatever cash you already have for a down payment.

For example, if you have 13 percent to put down, then your loan would be an 80/7/13 (80 percent first loan, 7 percent second loan, 13 percent down).

You’ll close on both the first mortgage and home equity loan at the same time. Typically, the 80 percent loan is fixed, and the home equity portion is adjustable, but it doesn’t always have to be that way. Many lenders offer a variety of flexible options, particularly if your credit is good.

Remember, the interest rate on your second loan will generally be higher than the interest rate of the first loan. But even paying the usual higher rate on a second loan, the amount you pay will generally be less than if you had PMI.

Take a look on my Web site, ThinkGlink .com, for information on piggy back mortgages, then talk to a local mortgage broker, credit union, bank or mortgage lender about what options they offer.

Until you lay out the details side-by-side, you'll have trouble figuring out which loan is right for your personal financial situation.

Ilyce R. Glink’s latest book is “100 Questions Every First-Time Home Buyer Should Ask, 3rd Ed.” (Three Rivers Press, $18). If you have questions, you can call her radio show at (800) 972-8255 any Sunday, from 11 a.m. to 12 p.m. EST. You can also write to Real Estate Matters Syndicate, P.O. Box 366, Glencoe, IL 60022, or visit www.thinkglink.com.

 
 
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