May 2017

A Home Buyer’s Cautionary Tale: Due Diligence Is Everyone’s Job

Author: Kitty Bartell

Six-million, one-hundred-seventy-six thousand—the number of homes sold in the United States in 2016, according to the U.S. Census Bureau. That is 16,921 homes every day. Looking at it from a high level—let’s say as high as a 747 flying at 40,000 feet above the earth—the purchase of one home passes like a momentary blip on the radar.

However, if you purchased a home during this time, you viewed the buying process through a much tighter lens. The stress you experienced, the negotiations you navigated, the roadblocks you overcame, the boxes you packed, the movers you supervised, the attorneys, mortgage brokers, and realtors you encountered, were all necessary parts of the process—a process in which the buyer may not realize the ways in which they can prevent potential disasters. Advice echoed by experienced home buyers and real estate professionals is to resist the urge to let the “experts” take over once your offer has been accepted.

Honestly, home buying can be exhausting: meeting with your realtor and lender, e-mails, texts, and then viewing properties (which could be a few or many), the back and forth of negotiations, all leading to your offer being accepted. Take a deep breath, but don’t race too quickly to your rocking chair. It is at this point that you must not let your guard down. This is when doing your due diligence is critical to successfully closing the sale.

A relatively new contingency popping up on many real estate offers to buy is a request for the seller to provide a copy of the home’s C.L.U.E. Report, which stands for Comprehensive Loss Underwriting Exchange. A part of the Home Seller’s Disclosure Report, this report provides a five-year insurance loss history on an address.

Should there be claims of loss, future access to homeowner’s insurance may be impacted. Without a C.L.U.E. Report, a home that experienced significant damage through a destructive event could be deemed uninsurable, even after the sale closes.

The C.L.U.E. report has been trademarked since 1992 by LexisNexis, a legal and business research and risk management company. Current property owners, insurers, and lenders for the property may order the report. Obtaining a copy of this report may also assist the buyer’s inspector when preparing their report. Not all real estate agents or attorneys are making this a requisite part of protecting their clients’ interests. Request this report; it will give you some peace of mind and may represent huge insurance savings in the future.

Another complex and somewhat sticky area where home buyers must not leave the due diligence only to the attorneys, is in the salability and viability of a property’s title. Allow me to share a cautionary tale. The facts of this buying experience are true, however, the names have been changed to protect…well, to protect everyone involved.

Beginning her home search in August of 2016, shall we say Jan, was excited to be on the path to purchasing her first home. “I have a friend who is a real estate agent,” she said. “I reached out to him. I had a little bit of a wish list of what I was looking for in a house. He was sending me homes; I was sending him homes. We looked at probably 20-plus homes before I found this one.”

Not listed as a short sale or a foreclosure, Jan’s offer was accepted in mid-December, and a closing date was set for February 3, 2017. She facilitated the paperwork, and depended on the attorney’s offices to put all the ducks in a row by February 3. Other than packing boxes and scheduling the mover, it seemed the hard work was over.

“On February 1, at about 5:30 p.m., my attorney contacted me and said there was a $192,000 lien on the house,” Jan said. Told she would not be able to close without a clean title, and following a flurry of telephone calls and e-mails, Jan cancelled, then rescheduled the movers for two days later, when they moved her things to a storage facility while she waited out the 10 days the seller is given, by law, to rectify the situation. Moving in with a friend, Jan was homeless, the seller was asking for $3,000 in cash (calling it rent) if Jan wanted to take possession of the home she thought she was purchasing, and her losses were piling up.

There is a relatively happy conclusion to Jan’s story. The troubled sale never did close, but she did find another home. That sale closed on March 17, and all the boxes have been unpacked; yet, in addition to the emotional costs, Jan’s financial losses were significant. After a difficult battle, she eventually recovered her $2,500 earnest deposit, nevertheless, extending her rate-locked loan cost $450, she had to pay for another inspection on the second home; she had to hire the movers again…and there were the storage fees. She did get some help from her Realtor. However, along the way, Jan discovered that her attorney learned of the title defect eight days before he ever contacted her, on her moving day.

Most home buyers do not realize that the public records in Beaufort County contain documents related to real property and may be accessed on their website for free. Every potential home buyer should visit www.co.beaufort.sc.us to navigate through the font of property information available there. Paid and unpaid tax histories, ownership, improvements and features of homes, and mapping, street, and aerial views can all be found under the heading On-Line Services. Information about recorded deeds, liens, and easement restrictions can be found at the same website by selecting the heading Departments, then Real Property Services. Select Register of Deeds, then Property Records, then Legacy Web Search (at the bottom of the page).

While South Carolina real estate law requires attorneys to represent all parties involved in the purchase or sale of property, that should not stop Jan, or any other buyer from making sure all is in order well before closing day. The best course is one on which you are the driver, from the start of the race to the finish line. There may have been six million-plus homes sold last year, and even more anticipated in 2017, but a bit of due diligence will go a long way toward finding your way home. 

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