Posted by Larry on January 16, 2004 at 13:50:58:
Unfortunately, I think the lady is stuck with an overvalued property. It’s a “buyer beware” (caveat emptor) scenario. Not to sound uncaring, but she should have done her homework in advance. For readers, however, this is a learning situation.
A few issues jump out:
Always do your own due diligence. Whether that’s pulling market comps or hiring your own appraisal, you always want to do it/hire it yourself. If your appraiser overvalued the property, at least YOU would have a contract with the appraiser to look at for potential recourse. A Buyer that relies alone on the Seller’s appraiser is taking on a large risk and is afforded no protention by the appraiser.
Shop for your own lender. I’m not suggesting that the lender did anything wrong, but how does this lady know that the Seller didn’t have a connection and/or hidden agenda with the lender he pursuaded her to go with? True, she got a loan for 100% of the purchase price, but that doesn’t necessarily mean that the mortgage company thought the value was appropriate. Mortgage companies have odd lists of criteria for approving loans. Some will take on more risk than others. Underwriters may ignore red flags in loan applications just to inflate production numbers. Whatever the case, it pays to shop the investment to at least two lenders for rates and loan-to-value requirements.
Broker & attorney advice is invaluable. I’m not saying that advice comes cheap, but paying for a one-hour consultation with an attorney or meeting with a buyer’s rep. broker (often free initially) could have pointed out some issues.
I’m not sure what the laws in the area where the lady purchased specifically say, but unless there is some form of blatant fraud present, I’m guessing that she’s stuck. The price was openly stated, she had an opportunity to inspect the property and do her due diligence and research of the market.
This is all my own two cents, but I believe she’d do well to consult an attorney in her area.
Best of luck to her and you.