Get real about real estate: Escrow impound account for insurance and property taxes

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Dear Michael:  My lender is requiring me to have my property taxes in an impound account. What is an impound account and would I benefit from it?

Answer: An impound account is an account maintained by the mortgage company to collect property insurance and property tax payments from the buyer to keep title free of any liens. To set up an impound account the lender divides the annual cost of insurance and property taxes into a monthly amount and adds it to your mortgage payment.  Since low down payment borrowers are a higher risk due to their lower personal stake in the property, lenders will sometimes want some level of assurance that the assessor will not seize the property because of non-payment of property taxes and that borrowers won’t be without homeowner’s insurance. An impound account ensures that the only person who will become owner of the house in case of default will be the lender. Even if an impound account is not required, one can be elected by the buyer. Some buyers feel that impound accounts are a bad idea and therefore would rather set money aside in a high-interest account. The only risk with an impound account is that if the mortgage company does not pay the property taxes for whatever reasons, the homeowner is still liable. For this reason homeowners should be aware of the due dates for these payments and monitor their impound accounts carefully. Although the impound account is designed to protect the lender, it can also be beneficial for some borrowers. By paying for big-ticket housing expenses gradually throughout the year, borrowers avoid the sticker shock of paying large tax bills, and are assured that the money to pay those bills is there when they need it.

Dear Michael: I am purchasing a new home and my Realtor insists that it is time to remove my loan contingency. I am not comfortable doing so. Why must I remove my loan contingency?

Answer: You obviously hired your Realtor because you trusted him/her to handle the purchase of your new home. If you appraisal came in at full value and all the lenders condition have been met for your loan approval, then there is no reason why you should not remove your loan contingency. The seller needs a guarantee that you the buyer, is committed to purchasing his home and mean business. The fact that you plan on “purchase this home no matter what” bares little guarantee to a seller that vested his lifetime retirement in his home. If there is minimal doubt that you may not be approved for the loan: hold off on removing your contingency. Be upfront with the seller and explain the situation. Lenders requirements for loan approval can advance beyond the 21 days’ reasonable time. If this is the case, the seller will recognize that you are not ready to remove your loan contingency because of factors beyond your control. If your seller cannot wait any longer he may submit a notice to perform asking for removal of contingency. Once received you can opt to either cancel the agreement or remove your contingency. If you remove all your contingencies including your loan and decide to cancel the purchase, you may lose your earnest deposit.

Dear Michael: I am making an offer on a house where the term “As Is” is used in the description. Should I worry about buying a house in its current “as is” condition? What if it needs major repairs?

Answer: The term “AS IS” in this case pertains to the property being sold without the seller making any repairs. This is common language for foreclosure and short sale properties where the seller (bank) will not make any repairs. In exchange for the “as-is” condition of a foreclosure and short sale the buyer will usually buy the property at a discounted price.  The term “as-is” can also mean that the buyer is buying the property in its current condition. All repair items may not be noticeable so it is a good idea to get a license home inspector to inspect the property. The condition of a property is one of the most important factors. And, yes that includes a termite inspection or any other components requiring inspection. Keep in mind, it never hurts to ask the seller to credit or make repairs. Often, when a seller is in escrow and is motivated to close escrow, he/she will compromise and credit or make repairs despite the “as-is” clause.

Michael Kayem is a Realtor with Re/max /Estate Properties serving Culver City and the Westside since 2001. You can contact Michael with your questions at 310-390-3337 or e-mail them to him at: homes@agentmichael.com