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Radon and Buy and Bail

A lot of people have questions about radon and are smart to be finding out information on it due to the fact that it is the second leading cause of lung cancer, after smoking.  With this being a huge safety issue in homes, we decided to focus part of our show this week on the topic of radon.  Radon is an invisible, odorless gas that can come into your house through the decomposition of soil.  It is a natural progression that can’t be stopped but can be prevented with the correct equipment.  Here in Minnesota, we have higher levels of radon due to the glaciers that moved across the state centuries ago, so testing your house for radon is always a smart way to go.

For those of you that are looking to buy a house, there is a new statute that came out in January 2014 that requires the seller to disclose whether or not they have done a radon test.   There are a few different ways to test your house for radon.   There are do-it-yourself kits or you can have a professional come in and test it for you.  If you do find out that your house has a higher level of radon, there are units that can be put in professionally.  If you decide to have a company professionally install a unit, be sure to work with a company that will make recommendations and will be honest with what the unit will actually do for you and how much extra work you will have to do on the home because of it.  The people that are looking for a house but decide they want to actually build new, have the luxury of radon systems that will be built into the home.

There is another topic that has been floating around the real estate industry that we wanted to focus in on and that is buy and bail.  Jeff Winship from First Option Mortgage dove into the definition of this.  Buy and bail is when someone is interested in purchasing a new home, but the home that they now have is underwater.  There is an intent there to possibly commit fraud, maybe not intentionally, but ultimately it is what happens.  People basically are going to buy another place and act like they are going to rent their current home out, but then just let it go.

You can go out and purchase another home but be aware that there is a reserve requirement, and those reserves are going to depend on what the equity position is or how much you owe against the current home you are leaving.  If it’s anything less than 30%, the lender is going to require 6 months of reserves on the home that you are selling in addition to 6 months of reserves on the home that you are purchasing, essentially a whole year of payments.

A reserve is what your principal and interest payment is on the home.  In addition to that would be your property taxes and your homeowners insurance.  A lot of people that are departing from townhomes have an association that would be all encompassing in that number, so it would be that monthly payment and then your new projected payment on the home that you are buying.

Some great call-in questions we had included:

Dan from Fridley: I was recently appointed personal representative of my brother’s estate, and unfortunately am the only living relative, so I’ll be getting his home.  He has a girlfriend of 30 years and I would like to take his assets, pay off the mortgage, and then give the home to her.  Can I quick claim deed that?

Jeff Zweifel:  I wouldn’t do anything without asking your attorney helping you with the probate proceeding.  There is a process in probate, where you have to have your probate letters and so forth before you can deed the property.  There could also be a tax consequence because it would probably be a gift since she is not an inheritor of the estate.

Jean from Mounds View: We have a quick claim deed with my mother’s house and someone just told us we should have a transfer on death and I was wondering if that is needed?

Jeff Zweifel:  Go back and check with the attorney that helped you with that first deed because sometime deeds reserve a life estate which means it is not a complete transfer where it may be a better situation to try this transfer on death deed  which is another form of transferring the property from your mother to yourself.

Darby in Glenwood:  I’m in the process of selling my house and disclosed the radon level.  The buyers acknowledged it and are okay with it, but the underwriters aren’t going through with the loan because of that level.  The buyers are under an FHA loan, and I’m just wondering where to go next with this step.

Nick Kelvie: Radon is not an issue in any of the disclosures, but what could cause a problem is if you had an inspection.  The seller’s disclosures won’t make a difference for underwriting, but if your inspection addressed the issue then that’s something we would have to address in underwriting.

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