Delaware Business Lawyer Blog

When a husband and wife who are looking around for a new house find one they like, the next step is to make an offer. The offer usually takes the form of a standard agreement of sale that their real estate agent helps them with. They sign the agreement and their agent submits it to the seller’s agent, who in turn takes it to the seller to accept or reject. If the seller isn’t happy with any of the terms in the offer, both sides are free to negotiate until they reach an agreement they both can live with.

New construction is quite different. If the same couple decides to have a house built, the builder presents them with the builder’s form of contract to sign. The terms are usually one-sided, and there’s not much room for negotiating the terms. As a Delaware real estate attorney, let me share with you a few examples.

A common provision in a builder’s contract gives a tentative settlement date, but goes on to say that the date of settlement will be extended in the event of unforeseen issues or other problems beyond the control of the builder. Most people read this language and sign the contract without giving it any further thought. They assume that the house will be ready by the settlement date, and if it’s not, any delay will be short. That’s not necessarily a good assumption.

Let’s take for an example a contract that says the newly built house will be ready by November 4, 2011. As this date draws near, the buyers start making all kinds of plans. They arrange for a moving company, they contact the utility companies, and they may even schedule people to come in right after the settlement. In addition, they also lock in the interest rate with their mortgage company.

The first question, therefore, is how much notice should the builder give you if settlement has to be delayed? Would you be okay if the builder calls a few days before the settlement date to tell you there will be a delay? The builder’s contract probably does not provide how much notice you are entitled to. If notice is important to you, ask the builder to add this to the contract.

The contract should also have what I call a “drop dead” date. In other words, if the builder is not ready to go to settlement by that date, you as the buyers should have to right to terminate the contract and get back your deposit. To be clear, I’m not suggesting that the builder should have any liability for a long delay. What I am saying is that you shouldn’t be required to put your life on hold for an unreasonable period of time. In the above example, the settlement date in the contract is November 4, 2011. How long can the delay be before you want out of the deal? What if the house isn’t ready by January, or March, or the following November?

If the builder is unwilling to insert a drop dead date, maybe you should think about working with a different builder. And this brings me to my final point. What if you talk to the builder’s representative, who very nicely tells you that you don’t need to worry because if the delay is too long, the builder will let you out of the contract? This sounds fine until you read another provision in the contract that says the written contract contains the entire understanding between you and the builder, and you are not relying on anything else that anyone has told you or that you may have read. The lesson to be learned is that if it’s not written in the contract, that’s the same as if you never heard it.

Builders' contracts are not as simple as they might seem. Buyers can read them and understand the language, but what buyers don’t realize is what’s missing from the contract that should be there for the buyers’ protection.

Mortgage interest rates are still at all-time lows, and so a lot of people who refinanced a few years ago are doing it again. One question that comes up a lot is: “Because I refinanced not too long ago, is there anything I can save money on this time around?”

The simple answer is “yes.” The first thing that should be reduced is the cost of the title search. Last time, a full search was necessary, going back way before you became the owner. Now that you’re refinancing again, all that needs to be searched is the period of time between the date you became the owner and the date of settlement.

The second thing you can save money on is title insurance. When you refinance, you won’t need to get owner’s title insurance again. Instead, all that’s required is lender’s title insurance. Assuming the amount you’re borrowing is not greater than the amount you borrowed last time, you will save 40% off the cost of title insurance. If your new loan amount is higher than your old loan amount, then you save 40% on what the premium would be for the same amount, and then you pay regular rates for the excess.

Here’s an example. Let’s say that the premium for lender’s title insurance for a $300,000 loan is $650. If you borrowed $300,000 or less last time, you would save 40%. Instead of paying $650, the cost would be $390. However, if you borrowed $300,000 last time and you’re borrowing $375,000 this time, you would pay the discounted rate on the first $300,000, or $390, and you would pay the full rate for the difference between $300,000 and $375,000.

As a Delaware real estate lawyer, I went to Court last week in a breach of contract lawsuit. I represented sellers who had entered into an agreement of sale to sell their home for $525,000.00. The buyers, who had paid a $15,000.00 deposit when they signed the contract, backed out of the deal and failed to show up for the closing.

The agreement of sale had the same language that’s in most contracts. If the buyers breach the contract, the sellers have the right to keep the buyers’ deposit as liquidated damages, or the sellers can sue the buyers for the actual damages which the sellers incur. My clients felt that they were going to suffer a huge loss because of the buyers’ breach, and so they decided to sue.

The trial resulted in an award of damages in favor of my clients in the amount of $71,699.00, which is a heck of a lot more than the $15,000.00 deposit. Here’s a brief explanation of how the Court came up with such a large award.

First of all, after the buyers backed out of the deal, my clients put the house back on the market. Unfortunately, the market value of houses began to drop, and when they finally found another buyer, the purchase price was $50,000.0 less than the first set of buyers had agreed to pay.

My clients were already living somewhere else when the buyers breached the contract. So in addition to the difference in sales price, we also proved that my clients had to pay a lot of expenses to keep up the house while they looked for another buyer. These expenses were for such things as a new roof, a hot water heater, trash removal, electricity, cable, water, taxes, insurance, ads for the sale of the house, etc.

Besides proving the economic loss, we also had to show the Court that the sellers tried to mitigate their damages. Mitigation of damages is a concept based on fairness. It basically means that when one party breaches a contract, the non-breaching party can’t sit back and let the losses accumulate endlessly and then try to collect them from the breaching party. Instead, the non-breaching party has a legal obligation to try to keep the losses as low as possible. As it’s explained by the Courts, “The mitigation of damages doctrine requires the plaintiff to take reasonable steps to minimize the consequences flowing from the breach.”

If you're selling or buying a home and have questions about your rights, you should consult with a Delaware real estate attorney.

If you’re selling your home in Delaware, you’re probably interested in knowing how much money you can expect to walk away with when you leave the settlement table. There’s a fairly easy way of estimating this number. The basic formula is:

Gross Amount Due to Seller
- Total Reduction Amount
Cash to Seller

How To Calculate the Gross Amount Due To Seller. Start with the Contract Sale Price. Add the Pro-Rations for taxes, sewer, and homeowner’s association dues.

How To Calculate the Total Reduction Amount. This amount is the sum of the seller’s settlement costs plus the amount needed to pay off the seller’s mortgage(s).

The Seller’s settlement costs usually consist of the following:
•commission to real estate agents for selling the home
•transfer taxes (1.5% of the sales price)
•courier fee for paying off the seller’s mortgage(s)

When you sell a home in Delaware, your sales contract contains the following language: “Taxes, special assessments, ground rent, water, sewer, electric and other lienable charges imposed by the State of Delaware, any political subdivision thereof, any school district, neighborhood association and/or condominium common expenses shall be apportioned pro-rata at the time of final settlement, as shall the rents and pre-paid operating expenses.”

The concept of pro-rations recognizes that there are certain bills that a seller may have paid before settlement, but the period covered extends beyond the date of settlement. When this happens, the seller has to be reimbursed for a portion of this period. Take the following example.

The New Castle County sewer bill is charged on an annual basis and covers the period January 1 to December 31. The sewer bill is usually paid in full by the end of February. Let’s assume that settlement takes place on September 1, 2010. The seller will have already paid the bill for the period January 1, 2010 through December 31, 2010. Because the buyer becomes the owner on September 1, 2010, the contract requires the buyer to reimburse the seller for that portion of the year that the buyer is the owner (September 1, 2010 through December 31, 2010).

Now let’s look at the County and School taxes. The tax year begins July 1 and ends June 30. The deadline for paying the taxes is September 30. If settlement take place on September 1, 2010, the seller is responsible for the taxes for the period July 1, 2010 through August 31, 2010, and the buyer is responsible for the taxes from September 1, 2010 through June 30, 2011. The logistics for this can be a little confusing due to the fact that the seller has been escrowing for taxes with his mortgage company. If the seller’s mortgage company has already paid the taxes, then the seller will receive his reimbursement from the buyer at settlement for the period September 1, 2010 through June 30, 2011. If the seller’s mortgage company has not yet paid the taxes, then the taxes for the period July 1, 20201 through August 31, 2010 will be deducted from the seller’s proceeds at settlement, and the seller’s mortgage company will refund to the seller the entire balance in his escrow account.

If you’re selling your home in Delaware, speak to an experienced real estate lawyer so that you can become an informed and knowledgeable seller.

As a Delaware real estate lawyer, I've noticed that when sellers get to the settlement table, they are sometimes surprised because they weren't expecting the payoff to their mortgage company to be so high. They pull out their most recent statement, and they see that there's a difference between the amount shown on the statement and the amount on the HUD-1 settlement statement.

The reason for these 2 different figures is that the amount needed to pay off a mortgage is not the same as the principal balance on a mortgage. In the following example. let's assume that the settlement date is May 4, 2010. Let's also assume that the last mortgage payment made by the sellers was their payment that was due April 1, 2010. The statement that reflects the April payment having been made shows the principal balance that's owed before the May payment is due.

It's important to understand that whenever you make a mortgage payment, you're paying interest for the use of the lender's money for the previous month. When you made the April mortgage payment, the interest portion of that payment was for the period March 1, 2010 to March 31, 2010. If you made your May mortgage payment before you came to settlement, then the payoff would be the principal balance after the May payment, plus interest on that balance from May 1 to the day they receive the payoff. With a May 4 settlement date, you're probably looking at interest from May 1 to May 5.

However, if you didn't make your May mortgage payment before coming to settlement, the payoff would be the principal balance after you made the April payment, plus interest from April 1 to May 5. It's all this additional interest that explains the big difference between the balance on your statement and the amount needed to pay off the mortgage.

If you're thinking of selling your house, you may wish to consult with an experienced real estate lawyer before you put your house on the market.

When you sell your home in Delaware, the law requires you to give a property condition report to all prospective buyers prior to the time the buyer makes an offer to purchase your home. This report is used to disclose all material defects of your property that are known at the time the property is put on the market and that are known prior to the time of final settlement.

One of the most common mistakes that are made in filling out this report is the failure to understand the difference between the words “no” and “unknown.” Here are 2 of the questions that have to be answered: Are there any zoning violations, non-conforming uses, or set-back violations? Are there any tax ditches crossing or bordering the property?

Your answer can be “yes,” “no” or “unknown.” Most sellers who answer these 2 questions select “no” as the answer. These sellers aren’t deliberately trying to mislead anyone, but they’ve never been given any reason to believe that these things exist on their property, and so they say “no.” But most people don’t know what a “set-back violation” is, or what a “tax ditch” is. If you don’t know what these things are, how can you say your property doesn’t have them? And yet, if you answer “no,” your buyer has the right to rely on your answer, and if it turns out later that these things actually do exist on your property, the buyer would have the right to sue you. Therefore, if you don’t know what these things are, the more correct answer would be “unknown.”

If you're thinking about selling your home as a "sale by owner," be sure to contact a knowledgeable and experienced real estate lawyer who can help you through the process.

On July 29, 2009, the Federal government issued a publication called "5 Tips For Shopping For A Mortgage." Although these tips may seem obvious, you'd be surprised how many people don't follow them.

One tip is to get advice from somebody who knows what they're doing - somebody you can trust. As a Delaware real estate lawyer, I find that most of my clients contact me after they've already been approved for the mortgage. At this point, it's kind of late to start asking questions about how your mortgage loan will work, or what fees you'll be paying. There's absolutely no reason for you to struggle through the application process by yourself when you can get your attorney to review what you're doing and offer helpful advice.

Another tip is to actually shop around for the best deal for you. This could save you thousands of dollars. How do you shop for a mortgage? Check out these suggestions.

Refinance ...Buy a new house...Interest rates... Mortgages. These words are in the news every day. How low are interest rates on mortgages? They haven’t been this low since 1965. To put this in perspective, check out what it cost to buy things in 1965:

gallon of gas - 31 cents
loaf of bread - 21 cents
dozen eggs - 53 cents
postage stamp - 5 cents
average cost of new car - $2,650

Unless you plan to move in the near future, it’s time to jump on the bandwagon. If you live in Delaware and you’re interested in starting the process of refinancing, your first step is to pick a mortgage company. Don’t make the mistake of thinking that your present mortgage company will give you the best deal. Believe me - it pays to shop around for rates.

You’ll need an attorney to handle your closing, and I always recommend contacting the attorney early on in the process to help with procedures and questions. Be sure to ask the attorney if there will be a fee charged if you don’t get approved for the mortgage.

This article is part of a series of articles dealing with refinancing your mortgage.

If you own a house in Delaware and you're about to refinance your mortgage, or if you're buying a home, you have to have a Delaware attorney represent you. But, you have the absolute right to choose your own Delaware attorney regardless of any recommendation you might receive from your loan officer.

This right to choose your own attorney is so fundamental that if you are referred to an attorney by someone who works for your lender, that attorney is required to inform you, in writing, that you have the absolute right (regardless of any preference that the lender may have and regardless of who is to pay attorney's fees) to retain a lawyer of your own choice to represent you throughout the transaction, including the examination and certification of title, the preparation of documents, and the holding of settlement.

The attorney who you are referred to must also inform you of the identity of any other party having an interest in the transaction whom the lawyer may represent, including a statement that such other representation may be possibly conflicting and may adversely affect the exercise of the lawyer's professional judgment on your behalf in case of a dispute between the parties. In this connection, a lawyer is deemed to have a "possibly conflicting" representation if he represents the lender or has represented the lender on a continuing basis in the past.

So if you’ve used an attorney in the past, or if a friend or relative recommends an attorney, and you’d like that attorney to handle your next real estate transaction, don’t feel pressured into using a different attorney just because your lender suggests that you somebody else.

As a Delaware real estate attorney who’s helping many previous clients and new clients with refinancing their mortgages, I’ve begun to see an alarming trend among lenders. The loan officer notifies the customer that the mortgage has been approved, and that it’s now okay to schedule the closing. The customer calls me and we agree on a closing date. Payoffs are ordered for that date, and my client makes arrangements to take off work and have someone watch the kids.

The day before the closing, and sometimes the same day, the mortgage company calls to let us know that they’re not ready, and that the closing has to be postponed for a few days or even a few weeks. This is especially frustrating for those clients who are expecting to get cash back from their refinancing so they can pay bills. It's also a little worisome if you're facing the expiration of your rate lock.

Under these circumstances, my recommendation is to keep in touch with your loan officer on a regular basis. Email is really the best way. Each time you write, ask if there are any conditions that have not yet been met, and if there’s anything you can do to move matters along.

Once a closing date has been scheduled, again write to your loan officer letting them know the date of the closing, and reminding them how important it is to you for them to honor that date.

With some married couples, their house is owned by only one of them because the other spouse doesn’t have great credit. The purpose of this article is to explain that poor credit is not a reason for your spouse to be deprived of home ownership.

In order to get the most of this article, you need to understand the difference between a Note and a Mortgage. The Note is your written promise to pay back the money you're borrowing from your lender. The Mortgage, on the other hand, is a lien against your home which gives your lender collateral backing up your promise in the Note.

The Note is signed by the individual who has to pay back the loan. The Mortgage is signed by whoever owns the home.

When you apply with the mortgage company, let’s say they tell you that your spouse can’t be on the mortgage due to credit issues. What they really mean is that your spouse can’t be one of the “borrowers” whose credit determines whether the loan will be approved. Again, that's the person who will sign the Note. When your mortgage company says your spouse can’t be on the mortgage due to credit issues, they don't really mean that your spouse can't be on the mortgage document that gives then collateral backing up your promise to pay.

Let's take a look at two scenarios.

#1. Husband is the sole owner of the house. He signs the Note promissing to repay the loan. As the owner, he signs the Mortgage as collateral for his promise. On top of that protection, the mortgage company is also given title insurance.

#2. Husband and wife are both owners of the house. Husband signs the Note promissing to repay the loan. As the owners, both husband and wide sign the Mortgage as collateral for husband's promise. On top of that protection, the mortgage company is also given title insurance.

In both scenarios, the mortgage company has the husband's promise to pay back the loan, and it also has the house as collateral.

Based on all of the above, if your spouse is not on the Deed to your house, it might make sense to use the occasion of refinancing to have your spouse's name added to the Deed. You're real estate attorney can get this done for you.

As a Delaware real estate attorney, I’m often asked to give an estimate of what the closing costs will be for a refinancing settlement. One of the costs that applies to every refinancing settlement in Delaware is the cost of a lender’s title insurance policy. Calculating the amount it will cost you for title insurance is pretty easy. The formula is $2.50 per thousand for the first $100,000.00 of the mortgage amount, and $2.00 per thousand for the balance of the mortgage.

Here’s an example of how it works. Let’s assume you’re getting a mortgage in the amount of $260,000.00. For the first $100,000.00, it’s $2.50 per thousand. There are 250 thousands in $250,000.00 and so the cost for the first $100,000.00 is $250.00. For the remaining $160,000.00 ($260,000.00 - $100,000.00), you can see that there are 160 thousands in $160,000.00. Multiply 160 times $2.00, and you get $320.00. The final step is to add $250.00 and $320.00, and you end up with $570.00 as the total cost for lender’s title insurance for a mortgage of $260,000.00.

If you purchased title insurance within the last 5 years, you may qualify for a 40% discount. Be sure to ask your settlement attorney to let you know whether you qualify for what’s known as a “re-issue rate.”

Many homeowners have decided to refinance but they're wondering whether they should apply now or wait until rates fall some more. As a Delaware real estate attorney who's been asked this question many times, one of the answers I used to give is that you'll never know when the rates have gone as low as they can until you've missed it and the rates have gone back up. Interest rates are lower than they've been since World War II, and as long as you can reduce your monthly payments significantly by refinancing now, there's no reason to wait.

But there's something else to consider when deciding the right time to refinance. Many of my clients have been applying to mortgage companies whose settlement costs are so low that it makes sense to refinance now with the plan being that if rates go down further, they will refinance again. In fact, one client had a settlement last week where the mortgage broker paid 100% of the costs, so refinancing was a no-brainer for this client. On the way out of my office, my client said that he would do this again and again if rates keep dropping.

Some recent articles to read on the subject of when to refinance are:

"Time To refinance?"

"Homeowners Rush To Refinance"

As Delaware real estate lawyer, I’ve been closely following the mad rush to refinance home mortgages. When you apply for a new mortgage, your credit score will be looked at closely. Credit scores have been in the news a lot lately, and there are some very good articles on this subject.

Two extremely interesting articles are "How to Add A Written Statement To Your Credit Report" and "Consumer Credit Report Statement Sample Letters."

There are also things you can do before you apply to improve your credit score. Check out:
"Increase Your Credit Score Before Refinancing That Mortgage"

"This Year, Resolve to Save More and Improve Your Credit Score"

"Knowing Your FICO Credit Score"

In order to refinance a mortgage in Delaware, you have to be represented by a Delaware attorney. Once your mortgage has been approved, call your attorney’s office to schedule the settlement. Contrary to popular belief, when it comes to choosing a date for settlement, it’s not always true that it’s better to settle closer to the end of the month.

Let’s take a close look at the concept of paying interest.

When you go to settlement, your new mortgage company will charge you interest from the date the loan disburses (after the 3 day rescission period) until the end of the month. Say you settle on Monday, January 26, 2008. Your loan would disburse on Friday, January 30, 2008, which means you’ll be charged interest for 2 days - from January 30th to January 31st. On the other hand, if you choose to settle on Monday, January 5, 2008, you’d be charged interest for 23 days - from January 9th to January 31st.

Okay, you’re now thinking to yourself, wouldn’t it be better to pay 2 days of interest rather than 23 days of interest? The answer would of course be “yes,” if the only interest that you’re paying at settlement is to your new mortgage company. But that’s not the case.

You have to remember that when you refinance, you’re using the new loan to pay off your old mortgage. And the payoff figure from your old mortgage company consists primarily of the principal balance after you made your last mortgage payment, and interest on that principal balance from the 1st of the month to the date your old mortgage company receives the payoff.

Let’s use the same dates we did in the previous example. You settle in January of 2008, which means you will have already made your January mortgage payment to your old mortgage company. If you choose to settle on January 5th, your Delaware real estate attorney will send out the payoff check on January 9th, and your old mortgage company will receive the check on January 12. This means you’ll be paying interest on the old mortgage for 12 days - from January 1st to January 12th. If, however, you settle on January 26th, your old mortgage company will receive the payoff on February 2, 2008, which means you’ll be paying interest to your old mortgage company for 33 days - from January 1st to February 2nd.

As you can see, when you refinance, you’re paying interest to your old mortgage company and your new mortgage company. Let’s see what happens when we combine the 2 examples used above.

If you settle on January 5th, you’ll pay interest to both mortgage companies for a total of 35 days (23 + 12). If you settle on January 26th, you’ll pay interest to both companies for 35 days (2 + 33). Either way, you’re paying interest for 35 days. The only question is how many days to the old, and how many days to the new. If you’re refinancing, the interest rate on your new mortgage is lower than the interest rate on your old mortgage. That being the case, would you rather pay interest at the lower rate for 23 days or for 2 days? As you can see, it can be better to settle closer to the beginning of the month.

To really know which is better, there’s one more calculation you need to do. That’s because we have to take into consideration that even though your new interest rate is lower, you may be borrowing more money on your new mortgage. Let’s assume that the principal balance on the old mortgage is $195,000, and the interest rate is 6.5%. Multiply $195,000 by 6.5%, and divide by 365. This gives you interest of $34.73 per day on the old loan. If your new mortgage is $200,000, and the interest rate is 5.5%, multiply $200,000 by 5.5% and divide by 365 days. The daily interest on the new mortgage is $30.14.

Using these figures, if you settle on January 5th, you’ll pay interest to both companies totaling $1,109.78, whereas if you settle on January 26, you’ll pay interest to both companies totaling $1,206.77. These figures, of course, change depending on the balance on the old mortgage, the amount of your new mortgage, and the interest rates on each.

The bottom line is that it’s not necessarily cheaper to settle at the end of the month.

One word of caution. If your old mortgage is an FHA mortgage, the rules are different. On an FHA mortgage, you can only pay off the loan on the 1st of the month. This means that regardless of whether the old mortgage company receives the payoff in the beginning of the month or the end of the month, you’re still going to pay interest for all 31 days in January. Therefore, you should settle closer to the end of the month so at least you’ll pay fewer days interest on the new loan. Also, using the example above, make sure you settle before the 26th so that the payoff is received before the end of January. If you settle on the 26th, the payoff check wouldn’t be received until February 2nd, and you’ll be charged interest on your old mortgage from January 1st to February 28th.

For more articles on refinancing, see:

Refinance Your Mortgage In Delaware

Should You Pay Points When You Refinance Your Delaware Mortgage

Refinancing Your Delaware Mortgage? Be Aware Of The 3-Day Rule

Will The Appraisal On Your Delaware Home Keep You From Refinancing?

You May Qualify For A Discount On Your Delaware Refinancing Setlement

If you’re thinking about refinancing your mortgage, part of the closing costs you’ll have to pay is the premium for lender’s title insurance. The good news is that you may qualify for a nice discount.

In Delaware, the amount you’ll be charged at settlement for lender’s title insurance depends on the amount of your new mortgage. Here’s how it’s calculated. On the first $100,000 of your new mortgage, the premium is $2.50 per thousand. For everything over $100,000, the rate is $2.00 per thousand. Let’s look at the following example.

Say your new mortgage will be $220,000. On the first $100,000, you’ll pay $250 ($2.50 x 100). On the next $150,000, you’ll pay $300 ($2.00 x 150). The total cost will be $550 ($200 + $300).

If you took out your current mortgage within the last 5 years, you’re entitled to a discount of 40% off the cost, so instead of paying $550, you’ll pay $330. Please note: The actual savings would be reduced if the original principal balance of your old mortgage was less than the amount you’re borrowing on the new mortgage. For example, if your old mortgage was for $210,000, the 40% discount would only apply to the first $210,000 of your new mortgage, and you’d pay the regular rate (with no discount) on $40,000 (the difference between the new mortgage amount and the old mortgage amount). If you have any questions about title insurance, closing costs, or any other aspect of refinancing, speak to an experienced Delaware real estate attorney.

As a Delaware real estate lawyer, I’ve been receiving a lot calls from people who have questions about refinancing. This is the fourth installment in a series of articles dealing with refinancing. You can read the previous articles:
(1) Refinance Your Mortgage In Delaware; (2) Should You Pay Points When You Refinance Your Delaware Mortgage; and (3) Refinancing Your Delaware Mortgage? Be Aware Of The 3-Day Rule.

There’s no question that the interest rates being offered today are very attractive, and that you probably could reduce your payments of principal and interest each month by refinancing. Unfortunately, there are 2 stumbling blocks that have to be overcome in order to move forward.

Because of the collapse of our economy, it’s not as easy as it used to be to qualify for a mortgage. Your credit score and your income will be scrutinized carefully before a lender approves your mortgage application.

But even if you qualify, the numbers might not work out because of the decline in home values. If you borrowed 80% of the value of your home when you bought it (or the last time you refinanced), it’s very possible that the principal balance you owe on your old mortgage is more than 80% of the current value of your home. If that’s true in your case, then you can expect your new mortgage to have pmi (private mortgage insurance) each month. And if you have to pay pmi, that amount could easily wipe out the monthly savings you’re hoping to get by refinancing.

Be sure to discuss these issues with your loan officer or an experienced real estate lawyer

As a Delaware real estate attorney, I’ve found that many people who refinance the mortgage on their home aren't aware that the funds from their mortgage company won't be disbursed on the day of settlement. This can be quite a shock for those who are expecting to get money back in order to pay bills. This article explains the 3-day right of rescission, and it’s the third in a series of articles about refinancing.

When you refinance the mortgage on your home, federal law requires your mortgage company to give you 3 days after settlement to cancel (or rescind) the transaction, without any cost to you. Why would a person cancel? Here are the 2 most common reasons. The terms of the new mortgage might not be what you were promised by your loan officer. Or, you might find out that you can get a lower rate elsewhere. If you decide to cancel, you’re required to do so within three business days from the date of your refinancing settlement. Although federal law states that Saturday should be treated as a business day, not all mortgage companies include Saturday when calculating the 3 days.

If you cancel, the law also states that within 20 calendar days after your mortgage company receives your notice, they have to take the steps necessary to reflect the fact that the new mortgage on your home has been cancelled. They also have to return to you any money you gave to them or to anyone else in connection with this transaction.

You can use any written statement that’s signed and dated by you and states your intention to cancel. You can also use a cancellation form that you’ll receive at settlement.

The other articles in this series on refinancing are Refinance Your Mortgage In Delaware and Should You Pay Points When You Refinance Your Delaware Mortgage?

In a previous article, I described the current interest in refinancing, and how you need a Delaware real estate attorney to assist you. Let’s assume you’ve decided to refinance the mortgage on your home in Delaware. Your loan officer tells you his company is offering a mortgage with zero points. But you also learn that you can get a lower interest rate if you agree to pay points. The purpose of this article is to explain what points are, and to show you how to figure out whether paying points makes sense for you.

A point is a dollar amount you pay your mortgage company at the time of settlement. One point is a one percent of your mortgage amount. So if you borrow $200,000, one point equals $2,000. Paying points is, in effect, paying interest up front. The more up front interest you pay, the lower interest rate you can get.

But the question is whether it makes sense for you to pay points. The monthly payment (of principal and interest) on a 30-year $200,000 mortgage would be $1,167 if the interest rate is 5.75%. Let’s say you’re told that if you pay one point, you could lower the interest rate to 5.125%. Your monthly principal and interest would then be $1,089 instead of $1,167. That’s a savings of $78 a month. The cost of one point is $2,000, and if you divide $2,000 by $78 per month, you’ll see it takes 25.6 months (just over 2 years) before you break even.

Another factor to consider is whether you have to borrow the extra $2,000 in order to pay the points. In that case, you’d be borrowing $202,000, so you’d have $2,000 less equity in your home, and your monthly payments would be based on a $202,000 loan rather than a $200,000 loan. Your monthly payment on a $202,000 loan at 5.125% would be $1,100. Your monthly savings would be $67 ($1,167 - $1,100), and it would take 29.8 months before you break even.

There are some excellent online calculators available that help you decide whether it makes sense for you to refinance. These calculators also allow you to compare a mortgage with 1 or more points with a mortgage with no points, so you can see which is the better deal for you. Here are a few:

CNNMoney.com
Bankrate.com
Mortgage101.com

It’s now time to seriously consider refinancing your mortgage if you’re in Delaware. Like gas prices, interest rates are lower than they’ve been in quite some time.

A refinancing settlement involves replacing your old mortgage with a new mortgage. There are a lot of options. Some people borrow just enough money to pay off their old mortgage and to cover their closing costs. Some people borrow a lot more, and use the extra cash they get back to pay off other debt that carries a higher interest rate. Others replace their 30 year mortgage with a 15 year mortgage. In each case, there's a question of whether to pay points to get a lower interest rate. I'll address this in my next article.

To learn more about real estate settlements and refinancings, making prepayments on your mortgage, and to check out the actual documents you can expect to sign at setlement, go to my website. And, if you have any questions, call me for a free consultation over the phone or in person.

As a part of my practice, I’m a Delaware real estate attorney. In light of what’s been going on with our economy, and all the blame that seems to have been placed on lenders giving mortgages to people who couldn’t afford the payments, I thought I’d tell you about a refinancing settlement I had a while back that’s a perfect example of what happened.

One of my clients who wanted to refinance his mortgage submitted an application to a mortgage broker. The mortgage broker’s job was to find a lender who would approve the loan. In no time at all, the loan was approved, and my client and his loan officer from the mortgage broker came to my office for settlement.

During the settlement, one of the documents my client had to sign was the final application for the loan. This is a routine document to sign, and it certifies that the information about my client that the broker submitted to the lender was true. As my client looked at the application, something jumped off the page. His income was grossly overstated. He simply didn’t make anywhere close to what the broker had put on the application.

My client brought this to the broker’s attention, and the broker told my client to sign the application any way because it was a no income verification loan. Realizing what was happening, I asked the broker a series of questions in front of my client which resulted in the broker saying that he was aware that the income reported on the application was not correct, but there was no reason to worry about it because the lender was not going to attempt to verify his income. My client said he was not comfortable with this, and I pointed out to my client that regardless of whether anyone checked it for accuracy, the lender was relying on the truth of the application in deciding whether to lend the money. I also pointed out that there was a paragraph below the signature line advising that there were civil and criminal penalties for making a false statement on the application. When the broker continued to encourage my client to sign the form, I informed him that my client and I were not about to help the broker commit a fraud on the mortgage lender, and that settlement was canceled.

I wonder how many other mortgage loans this broker and others like him were involved in?

This story is just one of the reasons to make sure you have an experienced and honest Delaware real estate attorney when you go to settlement.