An Overview of Easements

Title insurance is generally associated with insuring a purchaser's or lender's interest in a particular piece of real estate. The right to use an easement is often considered less important than unencumbered title of the insured parcel. An easement, however, can significantly affect the value of the insured parcel. Questions regarding the validity or use of an easement may result in a dispute among neighbors that may require protracted litigation to resolve.

In light of the potential for such unpleasantness, the practitioner is well advised to be aware of any easements related to the property to be insured. The following discussion is intended as a brief and general overview of some of the issues a practitioner will encounter when a title company is asked to insure an easement or a piece of real estate affected by an easement. Of course, each title order will have its own set of circumstances requiring individual attention by the title examiner.

THE BASICS

An easement is a non-possessory right of the owner of one parcel of land to use the land of another. This right to use the other's land is limited to a particular purpose and may be further limited as to the form of usage. 1 An analysis of this definition raises some important points. An easement is an interest in land and not merely a contract right. The non-possessory feature of an easement differentiates it from fee title to land. An easement holder may not occupy and possess the land burdened by the easement; he or she may only use it for the purposes and in the manner established by the terms and conditions of the easement. The meaningful distinction between an easement and a fee simple estate is that the easement describes the right to the use of the land which is specific or restrictive in nature, while the title to the fee is the grant of title to the land itself. 3 This difference is significant because a fee owner receives substantive and procedural rights unavailable to easement holders.

Easements are also distinguishable from leases. A lease is a right to exclusive possession of another's property for a specified period. The key difference here is between possession and use. In Baseball Publishing Co. v. Bruton, the Supreme Court of Massachusetts concluded that the "lease" of a wall for the purpose of maintaining a bill board was in fact an easement in gross because the wall was left in the possession of the owner, who still maintained the right to use the wall for any purpose not specifically granted or forbidden by the " lease."

Easements are also distinguishable from licenses. Much of the litigation in this area, including Baseball Publishing, begins with one party arguing that the right in question is a lease-an irrevocable interest in land- and the other party asserting that the arrangement is a license-a revocable personal right-when in fact the interest might actually be an easement. As a result, essentially the same arrangement has been found to constitute a lease in some cases, a license in others, and in still other cases, an easement.

CLASSIFICATION OF EASEMENTS

While the distinction between easements, leases, licenses, and fee estates may be somewhat murky, the differentiation among types of easements is little clearer. Easements are usually separated into easements appurtenant and easements in gross. An easement appurtenant is created to benefit the owner of another parcel, known as the dominant tenement. This easement will run over another tract called the servient tenement. The easement appurtenant therefore requires both a dominant and servient tenement. One owner's land must be burdened in favor of the estate of another. An easement appurtenant runs with the land. If the dominant tenement is sold, the easement will pass to the grantee, even though it is not specifically mentioned in the document of conveyance. 6 Similarly, if the servient tenement is sold, the grantee takes subject to the easement. An easement in gross does not require its holder to own or possess other land. There is a servient estate, but no dominant one. For this reason, an easement in gross has been described as an irrevocable interest in the land of another. Whether an easement is appurtenant or in gross is determined by examining the grant of easement to detect the intention of the parties and the circumstances at the time of the conveyance. While the deed of conveyance need not include the word "appurtenant," the courts have often presumed that an easement is appurtenant rather than in gross. There is a constructional preference for easements appurtenant over easements in gross.

This preference for easements appurtenant can be overcome by an examination of the land involved. If the easement does not benefit the owner of a particular piece of land, there is no dominant tract and the easement is in gross.8 Utility easements are usually held in gross. An easement appurtenant can not be converted into an easement in gross. The easement's classification will remain in effect throughout its usage.

CREATION OF AN EASEMENT

Most easements are created by express grant contained in an easement agreement or deed or by reservation in a deed. An express grant, however, is not always necessary to create an easement.

An easement may be acquired by prescription and by implication as well as by express grant. Whether an easement by prescription is appurtenant or in gross is determined by the use of the servient estate. If the prescriptive use was for the benefit of the possessor of a particular piece of land, the easement is appurtenant. If it is not for such benefit, it is in gross. Implied easements may be deemed necessary for the use of the dominant estate. Clearly then, they are easements appurtenant to the dominant parcel.

TITLE INSURANCE ISSUES

A title insurer will be faced with two major concerns regarding easements: whether the easement can be insured for a dominant tract and whether an easement can be waived as an exception to the coverage provided by the title policy for a servient tract.

If the title company is requested to insure an easement for the first time, the following questions will be raised:

A. Is the easement appurtenant?

B. What land is benefited by the easement?

C. Were the dominant and servient tenements owned by different parties at the time of the creation of the easements?

D. Was the easement executed by or consented to by all of the lienholders of the servient tenement?

E. How was the easement created, and was the document creating it properly drafted, executed and acknowledged?

F. Does the document creating the easement state its purpose?

G. Does the document state consideration?

H. Is the easement described specifically as an easement appurtenant, binding on successors and assigns?

I. Does the easement document provide that it runs with the land?

J. Does the easement indicate a duration, or is it described as perpetual?

K. Is the easement an exclusive right or may other property owners use it as well?

L. Has an event occurred which may have terminated the easement?

If the examiner is satisfied that a valid easement has been established, the next step is to verify the continuing physical existence of the easement. The examiner will review an inspection report or survey of the easement parcel to confirm that the easement is open and in use. In some areas, a title company may actually send out an employee to physically inspect the property. Upon receipt of the survey or inspection report, the examiner will want to verify that there are no barriers or obstructions which interfere with the purpose of the easements. A survey include the show the easement in its written legal description and in the depiction on the plat. If the easement has been recorded, the chain of title should cover the easement parcel.

The examiner will also decide whether any events have occurred since the creation of the easement which may have resulted in its termination. If the dominant tenement has been resubdivided, split into multiple parcels or undergone a change in use, the underwriter will review the situation to determine the easement's viability.

Tax Sales

If an existing easement has its own tax number separate from the servient tenement, a tax search should be ordered to verify that there are no delinquencies affecting the easement. If an existing easement lies within a tax parcel affecting the entire servient tenement, however, tax delinquencies will not affect the easement. For any easements to be created at a closing, however, all tax delinquencies on the servient tenement must be paid or redeemed prior to the closing. A tax deed shall not extinguish or affect any easement which was created on or over that real property before the time of the tax sale, unless the entire sold tax parcel consisted of only the easement parcel itself. 35 ILCS 200/22-70 (1992).

Merger

The most subtle way of destroying an easement is the application of the doctrine of merger. The risk that the title to the dominant and servient tenements has merged is a dangerous possibility that must be addressed by the examiner. The doctrine of merger states that if ownership of the dominant and servient tenements becomes vested in the same party, the easement over the servient tenement will merge into the fee title of the dominant tenement and thus be destroyed. As an example, A owns Lot 1 and has an easement over adjoining Lot 2 for ingress and egress. If A buys Lot 2, the easement over Lot 2 will merger into A's fee title and will be destroyed. A's fee ownership of Lot 2 gives A far greater right in the land than the ownership of the easement, therefore the smaller right merges into the larger one. If A later conveys Lot 2 to C, the easement must be recreated by a new grant.

The examiner will search the title of both the dominant and servient tenements to look for an incidence of common ownership of both tenements in one party. If such commonality of ownership is located, a new easement must be created, even if the common ownership had been separated later in the chain of title.

In a recent Illinois case, the appellate court stated that a merger occurs when a dominant estate and the servient estates are owned by the same person, thereby extinguishing an easement by virtue of unity of title and possession, given that one has no need of an easement over one's own property. Ownership of both the dominant and servient estates must be identical in duration, quality, and all other circumstances of right. In Ellis V. McClung, the Illinois appellate court held that where the evidence failed to show that the benefited property and the property subject to the easements was all owned by the same parties under identical circumstances, the easements were not extinguished by the doctrine of merger. These circumstances included the duration and the quality of the title. 10

Abandonment

An easement created by a grant, deed or reservation can be destroyed or lost by the owner's voluntary abandonment. There is no duty to use or enjoy an easement as a condition of the right to retain the easement. Therefore, to constitute an abandonment, there either must be an overt act which affirmatively and unequivocally shows an intent to abandon the easement, or a failure to act. This carries the implication that the owner neither claims nor retains any interest in the easement. The dominant owner must clearly relinquish possession or use of the easement. The abandonment is complete the moment the intent to abandon and the relinquishment of possession or use unite. 11

Destruction by Agreement: Abrogation

An easement may be terminated by an agreement between the owners of the dominant and servient estates. This agreement is often known as an abrogation agreement because it abrogates or ends the easement. If the examiner encounters an abrogation agreement in the chain of title which terminates the easement to be insured, the easement is uninsurable.

Waiver of an Easement

If a customer requests that an easement be waived as an exception on the title commitment for a servient tenement, the title company will usually require that a validly executed abrogation agreement be recorded. This agreement must be executed by all parties having an interest in the dominant tenement. In some cases, a necessary parties search should be ordered to determine the list of parties who will need to join in the abrogation agreement.

This articles incorporates Chicago Title Insurance Company Underwriting Guidebooks and examining manuals, as well as a September, 1997 article on Easements by Jeffrey Rezwin and Mary Scmuttenmaer of Chicago Title Insurance Company. These materials are incorporated without specific citation.

1. W. Burby Handbook of the Law of Real Property S23 (3rd Edition, 1965).

2. The Law of Easements and Licenses in Land, Bruce and Ely, p. 1-2 (1988).

3. Park County Rod and Gun Club v. Department of Highways, 163 Montana 372,377; 517 P. 2d 353,355 (1973).

4. Baseball Publishing v. Bruton, 302 Mass. 54, 56, 18 N. E. 2d 362,364 (1938).

5. R. Powell, The Law of Real Property, P. 430 (1987).

6. Taylor v. Lanahan, 73, Ill. App. 3d 829, 832; 399 NE 2d 425, 428 (1977).

7. The Law of Easements and Licenses in Land, Bruce and Ely, p. 2-5.(1988).

8. The Law of Easements and Licenses in Land, Bruce and Ely, p. 2-6 and 2-7 (1988).

9. Curtin v. Franchetti, 156 Conn. 387, 389; 242 A. 2d 725, 727 (1968).

10. Ellis v. McClung 291 Ill. App. 3d 448, 459,460 (1997).

11. Illinois Real Property Service, Sales and Transfers, Section 30:48 (1988).

By Neda Dabestani-Ryba

Expense List for Buying a Home

There are many expenses that come with buying a home. The following list is a good example of what to expect:

Down payment - A minimum of 20% of the home's purchase price is usually required for the best loan terms and to avoid paying private mortgage insurance (see below), but it's entirely possible to buy a house with a smaller down payment.

Monthly mortgage payments - Include loan principal, interest, and sometimes additional charges for taxes and insurance.

Property taxes - Amounts vary, but the average is around 1.5% to 2% of a home's purchase price.

Homeowners insurance - Again, the cost varies. Call insurance companies for more information, or contact the Florida Department of Insurance for surveys of prices for insurance rates.

Private mortgage insurance (PMI) - If your down payment is less than 20% of the purchase price, this can tack several hundred dollars each year to your loan costs until the equity in your home reaches 22%, when you no longer need the insurance.

Maintenance - Varies year to year, but you may spend about 1% of the purchase price annually on maintenance and repairs.

Closing costs - Include points and other fees charged by the lender, which can add up to 3% of the amount you borrow; title insurance, from a few hundred to over a thousand dollars, depending on the purchase price of your home; inspections, about $200 to $500; and other miscellaneous fees. Many of these costs are negotiable between the buyer and seller, and are dependent on local customs. You can also negotiate with the lender to reduce, and in some cases completely waive, certain costs.

Housing expense ratio Typically, mortgage lenders won't allow these housing expenses to be more than one-third of your household monthly gross income. In other words, 28% of your monthly gross pay (for example, your annual salary divided by 12) is the usual maximum "housing expense ratio" allowed by lenders.

The "housing expense ratio" compares your monthly gross income to "PITI," an acronym for:

* Principal, or the amount you borrowed, of your mortgage loan

* Interest on the mortgage loan

* Taxes: property taxes

* Insurance: homeowners and private mortgage insurance (PMI)

Debt-to-income ratio.

On top of the 28% lenders allow for monthly housing expenses, they will usually let you spend another 10% for other debt repayments such as student loans, car loans and other similar loans. Added together, your housing expense ratio and monthly recurring debts make up your "debt-to-income ratio," and should not be higher than 38% of your monthly gross pay.

Now the Good News

The good news is that there are tax benefits to owning a home. The IRS lets you deduct mortgage interest and real property taxes, within limits, on your annual income tax return! Contact a real estate or tax attorney for the specifics in your area.

Branded Email in the Real Estate Industry

Branded Email in the Real Estate Industry

You're in the real estate industry, and that means you've got a brand. Chances are, you've spent quite a bit of money to build that brand, whether it's through franchising fees, marketing, websites, business cards, other print materials, advertising, yard signs, and/or through other means. And whoever answers your phones probably answers it with your brand as well - "Good morning, thank you for calling Your Brand Here Real Estate, how can I help you?" Your brand is out there, getting you business, because people recognize and trust it. But what about your email? How much could it benefit you to include your brand on each email you send every day?

I'm not talking about mass email campaigns. I'm talking about branded email that transforms your everyday, plain text emails into dynamic sales pieces. With a good email branding system, you can include your logo, colors, your picture, and links to your website. Some solutions even allow you to upload pictures of properties directly into the designs. Because over 90% of all communication is visual, the power of having graphics in your email is tremendous. Also because of this, branded email will soon become a standard or even a "requirement" in the real estate industry, much like business cards and websites.

A Quick Scenario

Lets look at this scenario - you are a prospective homebuyer and you receive email from two real estate agents. One is a plain text email that introduces the agent and directs you to his website for more information. The second one you receive is branded with the brokerage logo, colors, and it fits with all of the rest of their marketing material, so you instantly get a great impression in your mind of her company. The agent introduces herself and directs your attention to a picture of a newly listed property in your price range, and tells you to click on it for more information. Are you more likely to search the first agent's website for a property, or click on the image to look at that house and possibly similar houses?

Branded email also helps build a relationship with your client. In the situation above, you received an email from the agent with a link to a house in your price range that you may be interested in. It was tailored to you, who would you go back to for more information or more listings?

What Should I Look For?

Next, I want to give you a quick rundown of what to look for when you're considering a branded email system. First and foremost, if the company has a free trial, take it. You don't want to purchase something and end up hating it. While you're researching, here are some questions to ask -



Do the emails get past spam filters? This question is rather self-explanatory. If your emails don't get to their recipients, the solution is a waste of your money. Note that the body of the email also has a lot to do with getting past a spam filter - if you're using big, bold, red fonts, CLICK HERE links, and/or the word free (or other flagged words) repeatedly, chances are your email won't get through.

What size are the branded emails? In this case, bigger is not better. (If you're using Microsoft Outlook to send email, it may be embedding the images on its own. Ask your solution provider how to turn this off)

Is the product easy to use, or do you have to change the way you currently send email?

Can the template be set up to contain links to different pages/areas of your website? This is very big question, since being able to say "Click on the Virtual Tours link above to check out our properties!" is much better opportunity than "Hey, go check out my site at www.EmailAppeal.com and click around until you find our tours." As the old adage goes, on the Internet you're always 1 click away from losing a customer.

Can you easily change your contact information, picture (if the system allows you to upload one) and any other sensitive information on your template, or do you have to pay the solution provider to change them for you?

Do you have control over the aspects of the design, or can the users change the design at will? Brand control and consistency is a big deal in any business.

Does the system require you to send your email through a different server or to a different email address? This is a security risk whether they say so or not, as your emails are all being routed through a third party server. A good system will work without requiring you send your email through any third party.



What Kind of Pricing Should I Expect?

Most branded email solutions are very cost effective, so your decision should boil down to features. Make sure you get the answers to the questions above, and make sure those answers are in line with your expectations of any software provider. If you do a little homework, find a great product, and use it diligently, branded email will pay for itself with increased sales over and over again.

By Jason DeVelvis

Not Everyone is Buying or Selling, Some are Doing Both

As if one real estate transaction is not hectic enough? many of us end up needing to sell one place in order to move up to the next? this is the "real estate catch 22". Do we buy first?? Do we sell first?? If we are fortunate, these events occur at the same time, but that is not always the case. The problem is trying to determine if it is worse to end up "temporarily homeless" because you sold first, or financially strapped because you bought first.

Conventional wisdom states that IF you can't make them happen simultaneously, it is better to sell before you buy. The rationale? If you sell first, you don't end up at a disadvantage at the negotiating table. This happens by feeling pressured to accept something lackluster for your current home due to your impending closing on the new home. There are several providers of short-term, furnished lease properties that can fill the gap while you find the new dream home if needed. The purpose for finding a furnished property is for the simplicity in moving.

Few people I know want to pack and unpack twice and a few months storage is a small price to pay for the convenience. (For those that enjoy packing, there are support groups available.) And yes, if you were wondering? the two scenarios DO affect the financing angle as well. Having moved on from the first home does help in the debt-to-income ratios that lenders use to qualify you and in the funds that you have available towards the down payment of the new place? both help in the rates that will be available to you.

The UK has Gone Property TV Show Crazy!

The UK has gone property TV crazy. There are now shows about developing, buying, doing up and selling your home on every channel nearly every day. TV show presenters have become celebrities and household names.Some TV stations have had property show weekends purely dedicated to property TV shows. The UK has got an insatiable appetite for the shows.

Why property TV crazy?

The UK has experienced some unsustainable house price rises . This has resulted in property owners having huge amounts of equity in their homes. The majority of people who have owned a home for the last 5 years now have a huge asset. Looking after your home and achieving the best from it has become paramount.Those looking to benefit from their profits are seeking to invest in property overseas or buy second homes to rent. No wonder the UK has gone Property TV crazy.

We have reviewed some of the most popular shows.

Channel 4 Property Ladder. Channel 4

Presented by Sarah Beeney this programme charts the highs and lows of new property developers. Typically each show demonstrates that Budget is king. Developers shed a few tears whilst making their first attempt at making money from property development. It's certainly not a task for the feint hearted. Sarah Beeney is an experienced developer herself and gives some invaluable advice.

Our Review: Sarah Beeney can come across as a know it all and "I told you so" is so often on the tip of her tongue. However it's great watching other people's mistakes and she does make some very valuable points. We found ourselves shouting 'don't argue with her just listen

Location Location Location Channel 4 UK style

Two knowledgeable, young and successful London property finders Kirstie Allsopp and Phil Spencer face the weekly challenge of finding someone their ideal home to buy - in just a few days! Filmed at locations all over the UK.

Our Review: Some good tips on looking for your new home. Some of the home seekers can be a bit over ambitious and annoying. The programme is repeated on some satellite channels so some of the house prices are very historic.

Selling Houses Channel 4

Estate agent Andrew Winter tours some of the UK's hardest-to-sell homes, he meets stressed homeowners whose properties have been stuck on the market for months.

Anxious for a sale and unable to work out why no one wants to buy their home, they are desperate for a solution. Andrew gives his frank opinion and recommended course of action. His critical appraisal is often met with opposition? until the owner accepts his advice is vital if they want to sell their house. And sell they do.

Our Review: Andrew Winton is cutting with his comments on those hard to sell houses and there owners. No delicate comments from this man. Some of the owners are subject to his frank honest opinions.9 times out of 10 he is right. It is for us his brutal honesty makes the show more enjoyable. Andrew Winton does get those homes sold. His firm but fair manner makes him a must to watch.

A Place in the Sun

Amanda Lamb presents A place in the sun the show that helps buyers find their dream home in exotic overseas locations. Amanda (Scottish widow advert) finds a wide range of the best properties available and guides potential buyers through the peculiarities and pitfalls of the local market.

Our Review: An excellent show that has extensively researched housing market trends in various sunny locations. It's a must if you are thinking of buying abroad

House Doctor

Anne Maurice is the domestic interiors equivalent of Anne Robinson. She's quick-witted, quick-tongued and quick-fire with her prognosis. If she isn't lightening it, stripping it or painting it white, she's ruthlessly depersonalising it - wrapping it all up in a big black bin bag and dispatching it with a crisp "goodbye"

Our Review: Anne Maurice points out the obvious to these homes sellers and if they don't believe her they are given frank views by potential home buyers. Her shows can become a bit repetitive. However a must watch show

Other People's Houses Channel 4

Providing an excellent opportunity to peer behind other people's curtains each week Naomi Cleaver follows a couple as they attempt to renovate a property and uses this as an excuse to see what other people have done with similar style buildings

Our Review: This programme provides a wonderful opportunity to see ordinary peoples ideas of how they think a home should look. Some useful ideas but it lacks the sparkle of similar shows.

Relocation Relocation Channel 4

Could you re-launch your life, selling your home to fund a new double existence; buying both a place in the country and a pied-a-terre in town? Professional property hunters Kirstie Allsopp and Phil Spencer present a brand new series, Relocation Relocation, helping six couples find the ideal balance: urban energy and rural relaxation.

Our Review: If you can afford two homes one for work the other for the weekends this may be for you. Some of the participants can come across as a bit smug.

Safe as houses

Safe as Houses: 'Tracy and Stephen Gibbs'

Moving house is high on the list of the most stressful things you can do and this property show explores that fact¸ with estate agent Emma Basden and builder Jason Maloney. Steve and Tracy plan to relocate from Cheshunt to St Austell in Cornwall¸ where Tracy is bowled over by the sea and fields and the kind of property they can afford. But things don't quite go to plan.

The UK has experienced some unsustainable house price rises . This has resulted in property owners having huge amounts of equity in their homes. The majority of people who have owned a home for the last 5 years now have a huge asset. Looking after your home and achieving the best from it has become paramount.Those looking to benefit from their profits are seeking to invest in property overseas or buy second homes to rent. No wonder the UK has gone Property TV crazy...

By Nicholas Marr

Inspecting Your New Home - 17 Areas You Must Inspect Before Taking Possession

Congratulations! You've made your decision; you've chosen your new home and your builder. So what needs to happen next? Once you have a firm contract and you have selected the features that will go into your new home, it is time for the builder to turn your dream into reality.

You will undoubtedly want to visit the building site from time to time during construction to check the progress of your home. Professional builders welcome your participation and enthusiasm; however, for safety reasons you should not enter the actual construction site unless by special appointment-an unauthorized site visit may also contravene the local labour code with respect to construction safety and the builder's liability.

Questions or concerns arising from a site visit or a drive-by should be addressed directly to the builder. The tradespeople on the site each have their own area of expertise and will not be able to discuss your home's progress with you. Nor are they able to make changes without the approval of the builder.

Before you take possession of your new home, the builder will invite you to "walk through" the house to conduct a pre-occupancy inspection. Three to five days before closing is best-when construction is substantially complete but there is still time for the builder to remedy any minor imperfections. Anything that is not to your satisfaction should be noted for a pre-delivery inspection report. Minor items such as scratches and incomplete paint work will be rectified before your move-in day. Other items will be corrected after you are settled.

The following checklist will help you to inspect your new home.

Exterior



Grading-should be sloping gently away from the house.

Sod-was it rolled when laid?

Wood, vinyl or aluminum siding-should be even and nailed securely to the walls.

Brick-should be evenly laid and clean, with weep holes intact.

Caulking-check around windows, doors, garage door, electrical outlets and fixtures.

Paint and stains-inspect for even coverage and proper colour.

Trim, shutters, fascia and soffit-must be proper colour, of good quality and securely fastened.

Shingles-are they clean, of proper colour and with no lifting corners?

Garage-should feature non-combustible materials on the wall adjoining the house (for instance, gypsum board with sealed joints); the garage door should open and close properly.



Interior



Basement-should be clean; no cracks in the walls; a floor drain in the lowest part; "healthy" looking wooden joists (a minimum of splitting); instructions and warranty cards for equipment (furnace, heater, HRV, etc.)

Doors-must be well-fitted and well-hung; secure locks for outside doors and door stops.

Windows-must open smoothly; lockable.

Walls-should be smooth and even; no cracks, visible seams or nail-pops; right colour; even paint coverage; no gaps at electrical switches and plugs.

Floors-minimum of squeaks and "spring"; smooth seams on carpet and other floor covering; even grouting between ceramic tiles.

Plumbing fixtures-no chips or scratches; faucets operating properly; caulking around counter tops and fixtures.

Upgrades and options-correct materials and quality; proper installation; right colours.

General state of cleanliness-no construction debris; clean heating ducts; etc.



You might want to hire a private building inspector or engineer to conduct the inspection for you. Look in the phone book under Building Inspection Services.

3 Strategies For Buying Property With No Money Down

Everyone has heard a story or read about someone who bought a property without paying a single dime as a down payment. But how does this work?

There are several "classic" methods commonly used to purchase real estate with no money down. There are an infinite variety of situations in a real estate transaction that could lead to a deal with no down payment. But for the sake of reality, I will focus on those that are most commonly seen in the current market.

1. Seller second - The buyer obtains a new first mortgage for most but not all of the total purchase price. The seller finances the rest.

Purchase price: $100,000
Buyers loan: $90,000 (90% LTV) (new first mortgage)
Sellers finances $10,000 (in the form of a new second mortgage)
The buyer has borrowed 100% of the purchase price. Thus, you have100% financing, and no down payment was paid by buyer. This is not a difficult strategy to employ if the seller has enough equity, is willing to hold a second, and the first mortgage lender approves.

One thing that is not mentioned in most articles about this strategy is the requirement for lender approval. The lender who is making the 90% loan will have to agree to allow the seller to take back a second mortgage. In cases where the buyer has better credit, this is usually OK with the lender. But if the buyer has a lower credit score, the lender may not approve of this. If your credit score is on the lower side, but you have good documented income, you may still qualify.

Herein lies the fundamental issue that makes it so difficult to write about your financing options and what to expect: The fact is that lenders who are making the first mortgages on a property can change the rules or make new rules in the middle of a deal. Therefore every deal is different. Every buyer's credit and income are different and lenders vary in their underwriting requirements.

It is a moving target. So while it can be said that you can get a 100% loan to buy a property, there are usually specific credit requirements, income requirements, etc. It makes this game rather unpredictable.

Talk to your lender ahead of time and find out if creative financing options such as a seller second would be allowed. Make sure you have a lender who is used to working on investment property loans. Some mortgage companies only have programs for owner occupants. You need to go to a lender who specializes in loans for investors.

2. Another common way to obtain a no down payment loan is to utilize one of the many low or no down payment programs that exist. Many of these are intended for owner occupants, but some are available for investors. Again, it is important to talk to the right lender.

If you have an investment property that you want to sell, consider taking back a second mortgage for 5-10%. This is not a huge amount, and it can help you sell your property faster.

When it comes to finding a seller who will help you create a no money down deal, consider buying from an investor who is willing to be flexible. Some investors are willing to do creative financing simply because they understand that it helps them sell houses. It never hurts to make an offer that includes a seller second. You never know until you ask.

There are some points to remember when purchasing investment property with no money down. A key point is the comparison of monthly payments to expected rental income. When you are financing 100% of the purchase price, your payments will be higher. If you have a second mortgage payment to add to a first mortgage, your payment may be even higher. Be sure your rental income will cover the entire monthly payment. 3. More common among professional investors is buying wholesale properties, using hard money to purchase and rehab.

When the rehab is done, you get a new mortgage that pays off the hard money loan. Since this is a refinance, you can take cash out of the property. You may have to bring some money to closing on the hard money loan, but you get it all back when you refinance, so you end up with no money out of pocket. This becomes not only a "no down payment" deal, but also a "cash back at closing" deal.

It works like this:
Purchase price $100,000
Repairs $15,000
Hard money loan $115,000

Purchase and repair, then get new loan to pay off hard money.
New loan is based on 90% of After Repair Value.
For our example, the ARV is $150,000

90% of $150,000 is $135,000.
New loan for $135,000. Subtract hard money loan pay off of $115,000 leaves $20,000.

You keep the extra $20,000 in cash, tax free since it is a loan, rent your house out and let the tenant pay the loan back. Your gross profit is $20,000 cash and $15,000 equity. Total gross profit $35,000. Not too bad for a couple months work.

Down payment by definition means specifically money that is used to "pay down" the total purchase price. This does not include money for closing costs, points, interest, and other items such as insurance. But if you are buying wholesale properties, fixing them and refinancing to pull cash out, you should be able to pay all your expenses and have a nice profit at the end of the day. (Just keep some of that cash in reserve for emergencies)

If you do 3 houses per year, and you only net $25,000 total, after paying all expenses on each of the 3 houses, you are still netting $75,000 cash and equity in about 6 to 8 months. Plus, if you are renting these properties, you are also creating additional streams of income through monthly cash flow as well as accumulating equity in each property.

This is a solid strategy to achieve a retirement nest egg and ongoing income for life in less than 10 years. If you look around at the real estate investors who are wealthy, the vast majority own rental property, be it residential or commercial.

They understand the concept of buying at a discount, then holding their properties for years. They get to the point where their holdings are worth double or triple the price paid. This is free money that you can earn simply by buying and holding long term.

There are wholesaling companies in every major city that specialize in selling fixer upper properties that fit with strategy number 3 in this article.

Look for their signs on the side of the road, their ads in the paper, or ads in local thrifty nickel type shopping papers. Most deals do require some out of pocket cash, even if it is only temporary, until you refinance.

True no down payment opportunities are pretty rare these days, with interest rates at historic lows. If interest rates go back up, (and they will), we will see more creative financing and more "no down payment" opportunities in the future.



By Donna Robinson