Frequently Asked Questions

Legal Hotline FAQ

A blog of the most frequently asked questions to the Maryland REALTORS Legal Hotline.

Cindy Sellers
Cindy Sellers
Cindy Sellers's Blog

I have a buyer-client who wants to purchase a property that is “for sale by the owner” (FSBO).

First, you need to determine if PHiFA applies. You will need to ask the seller if he is more than 60 days in default of his mortgage or if an Order to Docket (Complaint) has been filed. Obviously, the buyer would want to know this information anyway because it helps him to gauge whether the seller will need bank approval to transfer title or even if he will still have title to transfer by the time the transaction gets to settlement. In any event, if the seller is more than 60 days in default or the property has moved into foreclosure, that seller “has the right to rescind the contract for the sale or transfer of the residence in default within 5 days after the execution of the contract.” [§7-310(a)] If the seller is not in default or not in foreclosure, or doesn’t tell you that he is, then PHiFA would not apply.
Second, if PHiFA does apply, you and the buyer will also need to know that the contract may not contain a provision that requires the homeowner to “waive the homeowner’s rights under PHiFA, require the seller to consent to a jurisdiction for litigation or choice of law in a state other than Maryland, require the seller to consent to venue in a county other than the county in which the property is located, or impose any costs or filing fees, greater than the fees required to file an action in a circuit court.” §7-311(b). Additionally, the sale or transfer of the residence in default may not be executed using a quit claim deed. §7-310(c).
If the seller elects to rescind the contract of sale within the 5-day period, the homeowner’s notice of rescission must be in writing and is effective, however, expressed, if it indicates the intention of the homeowner to rescind the contract. Additionally, the right to rescind may not be conditioned on the repayment of any funds, provided however that any debt existing prior to a rescission shall continue to exist. §7-311(d) and (e). Therefore, buyer agents should hold the buyer’s earnest money deposit in their broker’s escrow account rather than giving the deposit directly to the seller. Finally, during the 5-day rescission period, a deed or other document affecting title to the homeowner’s residence in default may not be recorded [§7-311(g)] and the purchaser may not transfer or encumber or purport to transfer or encumber any interest in the residence in default to any third party [§7-312(3)(ii)].
If the homeowner exercises his right to rescind the contract of sale, the purchaser must, within 10 days after receipt of a notice of rescission, return, without condition, any original deed, title, contract, and any other document signed by the homeowner. §7-311(f). Agents will want to keep non-original copies for their files for Real Estate Commission auditing purposes.
PHiFA is very clear that purchasers of property in default must be very careful in what they say to the homeowner because they can be held liable under the law if they make inappropriate statements. For example, a purchaser may not represent directly or indirectly that:
i) The purchaser is acting as an advisor or a consultant, or in any other manner represent that the purchaser is acting on behalf of the homeowner;
ii) The purchaser has certification or licensure that the purchaser does not have;
iii) The purchaser is assisting the homeowner to “save the house” or use a substantially similar phrase; or
iv) The purchaser is assisting the homeowner in preventing a foreclosure if the result of the transaction is that the homeowner will no longer own the property. §7-312(1)
Additionally, the purchaser may not make any other statements, directly or by implication, or engage in any other conduct that is false, deceptive, or misleading, or that has the likelihood to cause confusion or misunderstanding, including statements regarding the value of the residence in default, the amount of proceeds the homeowner will receive after a sale or transfer, any contract term, or the homeowner’s rights or obligations incident to or arising out of the sale or transfer. §7-312(3) In short, the less said by the buyer, the better.

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