Acquisition of a House
Buying a home can be one of the most rewarding experiences a person can have and one of the most complicated and stressful. Every home purchase involves a number of potentially complicated legal issues, confusing terminology and a great deal of paperwork. Retaining a real estate attorney to assist in the process is often a necessity. Not only can an attorney explain the significance of various decisions a buyer will have to make, but the attorney can point out potential problems that a buyer may not otherwise see.
Real Estate Agents
Most people interested in buying a home work with a real estate agent. Real estate agents help to bring buyers and sellers together, assist in the purchase process, and typically are paid a commission by the seller based on the purchase price of the home. In the past, real estate agents represented only the interests of the seller. Today, however, real estate agents have more flexibility in terms of whose interests they represent. A real estate agent can represent a seller, a buyer, serve as a dual agent representing both parties or as a transaction broker putting the agreement together without representing either party. Whomever an agent represents, he or she has a duty to disclose that relationship to the buyer and seller. If a buyer hires an agent, that agent will often split the commission with the seller's agent.
Though a seller and a seller's agent are obligated to make full disclosure of a house's material defects, it often pays to have a professional evaluate a home's structural and mechanical condition. A professional may uncover problems overlooked by an untrained eye: rotting floors, termites, rusty plumbing and defective electrical systems. A professional may also be able to give a buyer a more accurate estimate of repair costs.
Buyers may also want a real estate appraiser to research property appreciation rates, neighborhood population trends, average neighborhood income and employment base, or find out if there are any plans to build an unwelcome facility nearby, like a nuclear reactor or garbage dump. The more research a buyer conducts, the more likely he or she will be satisfied with the purchase.
A purchase agreement is a written document submitted by the buyer to the seller detailing the buyer's terms for the purchase of real estate. The terms of the purchase agreement can be enormously complicated and cover a panoply of issues such as price, down payment (also known as earnest money), mortgage arrangement, what items will be left with the property, zoning restrictions, title, deed, taxes, remedies in the event of default, conditional requirements for purchase and other important details (such as a satisfactory inspection).
The seller may accept the buyer's purchase agreement, reject it or issue a counter-offer. Usually, a buyer will limit the period of time in which a seller can accept the purchase agreement. If that period passes without a seller's acceptance, the buyer is under no obligation to purchase the real estate. However, if the seller accepts the buyer's purchase agreement within the time allotted, the buyer is legally committed to buying the real estate under the terms of the agreement. Therefore, it is extremely important that the buyer understand the terms of the purchase agreement before signing it and submitting it to the seller. Any contingencies (e.g., need to obtain financing) should be provided for in the purchase agreement.
Title and Title Insurance
A title is a right to partial or whole ownership of a piece of real estate. Typically, a purchase agreement will include a provision conditioning the sale of the property on the seller providing a marketable title. A marketable title is a title generally free from encumbrances and title defects that may lead to litigation. An example of a title defect might be a gap in the history of the property's ownership. In such a case, after the buyer has purchased the property, someone could conceivably show up and claim to be the rightful owner.
To protect him- or herself, a buyer should purchase and obtain title insurance as part of the purchase process. If an unknown title defect does surface after purchase, the buyer may recover damages under the policy. A title insurance policy sometimes includes a provision requiring the title insurance company to defend the title in litigation should anyone challenge the title. Title insurance can also be purchased by the holder of the property mortgage.
A deed is a written instrument that transfers title to property from one person to another. There are a number of different types of deeds. The most common is the warranty deed which requires the seller to pledge or warrant that he or she is the legal owner of the property and that there are no outstanding liens, mortgages, or other encumbrances against it. A warranty deed also guarantees that the seller may be held liable for damages if the buyer later discovers the title is defective. A warranty deed is no substitute for title insurance however. A seller can disappear, move out of the jurisdiction, die or declare bankruptcy.
Another type of deed is a quitclaim deed. A quitclaim deed relinquishes whatever interest the seller may have in a piece of property to the buyer. A quitclaim deed does not give the buyer the same protection as a warranty deed. If the seller is the sole owner of the property, the quitclaim deed is enough to transfer title, but there is no warranty the title is valid. Quitclaim deeds are frequently used during the property settlement phase of a divorce.
It is important for new buyers of property to record their deeds at the public records office, located in every county courthouse. Recording a deed gives "notice to the world" that a particular piece of property has been sold and that subsequent purchasers should be on guard.
Few people have enough money on hand to pay the full purchase price of a house. Consequently, most real estate is purchased with the aid of a mortgage loan from a financial institution such as a bank, credit union or mortgage company. A mortgage is a loan for which the buyer agrees to repay the principal amount, plus interest, over a period of years. The subject of the mortgage, the house and property is the security for the loan. If the buyer fails to pay the mortgage, the financial institution has a right to foreclose on the property in order to satisfy the debt.
There are a variety of different types of mortgages. An FHA mortgage is a loan from a private lender that is guaranteed by the Federal Housing Administration. FHA mortgages tend to have lower interest rates, lower down payments and longer terms over which to make payments (up to 35 years). However, not every house can be financed with an FHA mortgage, especially older houses that do not pass the inspection required by the federal government. VA mortgages, which are available to certain veterans, are loans from private lenders guaranteed by the federal Veterans Administration. These mortgages typically offer even lower interest rates than FHA loans and may not even require a down payment. Conventional mortgages are loans made by private lenders that are not guaranteed by the government. Thus, they typically have higher interest rates which tend to vary from lender to lender.
If the terms of the purchase agreement have been met, inspections concluded, title questions settled and financing obtained, all of the parties involved in the sale of the house will meet to sign documents and transfer money. This meeting is known as the closing. Just before the closing, the buyer and seller may meet to inspect the property one more time to ensure that the house and property have not substantially changed since the buyer last saw them.
A basic closing usually includes, among other things, the buyer showing the lender proof of title insurance and homeowner's insurance. The buyer then signs the mortgage agreement. The completed mortgage agreement provides cash toward the amount of the purchase price which is given to the seller. The seller then signs the deed that transfers ownership of the property over to the buyer. After any remaining cash adjustments are made, the purchase is concluded and the buyer should be the new property owner. The buyer should immediately have the deed and mortgage recorded at the local county records office.
This publication is not intended to be a substitute for legal advice or a legal opinion. It deals in broad terms only and is intended to merely provide a brief overview and give general information.
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