Smart Ways to Beat Home Disclosure Loopholes

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By and large, laws in all 50 states require that home sellers fully disclose any information about the property, especially negative information. But as always there are loopholes, so what should buyers know to avoid buying a $300,000 lemon?

It’s a list that more and more Americans might want to take a peek at. According to the National Association of Realtors, in the first ten months of this year, Americans bought 4.15 million homes. Most economists expect that number to rise significantly as the economy improves in 2011.

“The housing market is experiencing an uneven recovery, and a temporary foreclosure stoppage in some states is likely to have held back a number of completed sales,” says Lawrence Yun, chief economist at the NAR. “Based on current and improving job market conditions, and from attractive affordability conditions, sales should steadily improve to healthier levels of above 5 million by spring of next year.”

So if you’re one of those five million potential homebuyers, what do you need to know about the house you’re about to buy? Let’s take a closer look:

First, know the rules in your state. While different states have different rules, there are a few common denominators for what must be disclosed. Key issues like the property’s condition, any history of flooding or fire damage, or zoning issues that might impact the home’s condition and value are usually covered by state laws.

Past that, it’s up to you to make sure you are well-informed about the property. Take these tips to ensure you are doing your due diligence as a buyer:

Study the seller’s disclosure notice – Don’t make any offer on the home until you’ve thoroughly checked out the seller’s home disclosure paperwork. By and large, the seller’s disclosure should cover the following areas (again, check with your state’s consumer affairs office for a more detailed review):

•    Damage to key household areas, like plumbing, electrical, roof, and foundation
•    Environmental hazards
•    Pest infestations
•    Boundary disputes
•    Lawsuits
•    Past flood events
•    Tax liens
•    Condition of title

See a sample home seller’s disclosure statement here.

Get your own appraisal – In most states, homeowners don’t have to conduct their own appraisal or investigations to uncover any problem areas. All they are required to do is report anything they’ve noticed or uncovered from living in the residence. A recent Alabama court ruling protected the right of homeowners to sell properties “as-is” – without disclosing potential problems – so make sure you get the home checked out because the seller may not have to in your state.

Make sure you know who actually owns the home – In some instances, the home may not be owned by an individual – it could be owned by a company or other institution. In many states, homes owned by corporations or companies are exempt from disclosure laws. But buyer beware – foreclosed homes technically are owned by banks or other lenders, so be especially careful when buying a foreclosed property to make sure you have clearly established its ownership status. In the end, make sure to ask, and be ready to conduct your own research.

Also, watch out when buying a brand new home, since homebuilders are often exempt from disclosure laws, too, in some states.

When it comes to buying a home, you may have some protection. But to guarantee you don’t buy that 2,000 sq. foot lemon, take it upon yourself to kick the tires and look under the hood. If any problems exist – and often they do – you’ll be glad to you made the effort.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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