INTRODUCTION
Purchasing real estate, especially home buying,
is one of the most important responsibilities that people have during their
lives. More importantly, purchasing real estate is a skill in which you can
improve by being knowledgeable and having the best teammates to you achieve the
greatest gains possible.
For many people purchasing a home may involve
utilizing their life savings, and most likely it will involve borrowing money
that must be
Thus, it is extremely important that you, the
prospective buyer, use the greatest caution in buying a home, to protect
yourself, your money, your credit and most importantly your family.
For your protection, consult we me or another experienced real estate attorney,
absolutely BEFORE you sign a purchase contract, but two years BEFORE you
purchase. Preparing for property and home ownership is essential to getting the
maximum benefits and the fewest complications when your purchase, while you
own, and when you are ready to sell or give the property to a loved one.
Speak to your attorney before you speak to a
lender or a realtor. This way the person with the most knowledge and ability to
help you is involved first and lead you and the other team members. It should
also be noted that your real estate attorney will most likely be the only
person assisting you with professional liability insurance.
This is the person that you want directing your
mortgage broker and realtor. Obtaining a mortgage, entering a contract to buy
or sell property and transferring ownership interest in property are all
activities founded in and governed by law. Involving your real estate lawyer
when you are first thinking acquiring or disposing of real property, refinancing
your existing property, or leasing your property gives you the best chance at
financial success. It also minimizes the potential for getting sued or having
to file a lawsuit of your own.
Not all lawyers have experience in customizing
real estate contracts, loan documents or leases. Few lawyers have experience
dealing with construction defects, land use and zoning, air rights, riparian
rights or clearing municipal violations. Be sure to ask about the lawyer’s
experience and that of his firm. If you money and your family are important to
you, then so is getting quality assistance in your real estate purchasing,
selling, leasing and financing transactions. I also recommend that you select a
law firm that has experience in both transacting and litigation real estate
matters. In my experience, law firms that do both prevent problems better than
firms that are one dimensional.
Below is information to help you have a basic
understanding of the considerations you should be making when dealing with real
estate at a basic level.
THE PURCHASE AND
SALE AGREEMENT
One of the first documents given to a prospective
buyer by a real estate agent/broker is the purchase and sale agreement or
contract. Few people realize that this paper is the most important step in
purchasing a home — the details of this agreement determine the terms of your
purchase. Detrimental provisions in the contract may not be corrected or
avoided later in the transaction, so the best time to retain an attorney is
before the contract is signed. Before signing, read the agreement carefully.
The law usually requires judges to treat you as if you read every word of a
document before you signed it, so you should try to read everything carefully
before you sign a document. The items you should consider discussing with a
lawyer include the following:
• Exactly what land, buildings and furnishings are included
in your offer? Are the window treatments, fixtures, the stove, outbuildings,
refrigerator and the like included? Which items are excluded? It is not always
easy to know whether something is being sold with the home. Confirm that the
agreement lists the correct property address, legal description and/or parcel
identification number that corresponds to that listed on the deed.
• What payments are due under the contract?
• When can you take possession? If other than the date of closing,
is there an Occupancy (pre or post) Agreement? Be sure to clarify whose
responsibility it is to insure the property upon taking possession.
• Is the seller to furnish you with a good, marketable title? If
not, you may be purchasing the property even though other people may have
previously asserted claims to all or some of the property, or there may be
claims that have been brought by those involved in construction or remodeling
of a home.
• Which kind of deed should the seller give? Be sure to discuss the
difference between a warranty deed and quit claim deed. If you are taking title
either as a trustee or as joint tenants with right of survivorship, be sure
that you understand your obligations thereunder.
• Who selects the escrow agent and who pays for the title insurance
for the property in the event the offer is accepted?
• Have utilities been installed and paid for? Are the utilities
ready to transfer on the day after the closing date?
• Should a surveyor be employed to locate the improvements on the
property and confirm that there are no encroachments onto or from abutting
properties? Who should pay for the cost of the survey? If there are issues that
will affect the title, what remedies are listed in the contract?
• If a loan is to be obtained from an outside lender, who will pay
the loan closing costs? There are usually local customs as to which costs are
paid by the buyer or the seller, but it is better to make this explicit in the
contract.
• Can the buyer cancel the contract and obtain a refund of the
deposits if the buyer is denied a loan, and, if so, under what conditions?
• If termite damage is found, will the seller have to pay the cost
of repairs and treatment? If so, is there a limit?
• What are the zoning regulations, or other restrictions, on
the use of the property?
• What is the time within which the offer to purchase should be
accepted or refused? Is the date of such acceptance to be vital to the offer?
• If your offer is accepted, what steps should be taken with
respect to insuring the improvements to protect you, the prospective buyer,
pending the final closing?
• Who should be required to sign and accept the offer to make it
binding?
• Are boundary lines properly specified? If not, will such
deviations result in cancellation of the contract?
• Are timber, mineral and water rights, if any, properly covered?
• Who is responsible for paying property taxes?
• What are the remedies if the buyer or seller defaults?
• Should the purchase be contingent on any outside matters such as
the availability of financing on acceptable terms or the sale of the house that
you currently own?
• Whose responsibility is it to pay for the real estate broker?
• Whose responsibility is it to pay for governmental special
assessments that arise before closing? What is payable after closing? What
about homeowner or condominium association assessments? Are the appropriate HOA
addendums completed? Does the contract allow time for you to review any and all
applicable bylaws?
• How long should the buyer have to inspect the property?
• Does the seller know of any defects? Is there a disclosure form
that the lawyer recommends? Has a written disclosure or denial of any defects
been completed?
Your lawyer may not be able to answer some of these questions until examining
many public records, including court and governmental files.
It is important that your purchase agreement be prepared or reviewed by your
own lawyer before you sign to ensure the agreement covers your requirements.
Remember that even printed form agreements are negotiable, but this requires
knowledgeable and independent professional guidance.
THE TITLE TO REAL
ESTATE
A real estate title is a right to partial or
whole ownership to land and improvements upon the property. If you can prove
your title against all the world and the evidence or proof of ownership is
contained in proper public records and if it is for whole ownership, it is a
marketable title. A marketable title is free from reasonable doubt.
When purchasing a home, you should request a "marketable" title. Your
lawyer, after proper investigation, can tell you whether the seller is able to
convey such a title to you. No one can advise you without a proper
investigation.
WARRANTY DEED
A warranty deed is a conveyance of title plus
some warranties or guaranties. The usual guaranties or warranties by the seller
are: good title, freedom from encumbrance other than as excepted, possession to
the buyer and a promise to defend title.
These guaranties alone are not adequate protection, because they are no better
than the present and future financial responsibility of the seller. A warranty
from a financially responsible seller is comforting and desirable but is not a
substitute for a title examination and title insurance. Title defects have a
way of lying dormant for years and perplexing a buyer long after the property
has been paid for and the seller has disappeared or died.
NECESSITY FOR TITLE EXAMINATION
A title examination is a study of title
evidence from the public records, which can be from an abstract of title or
computer records. (An abstract of title is a collection of public records
relating to the ownership of a parcel of real estate. In many counties,
centralized computer records have replaced abstracts.) Your lawyer examines the
applicable title information to determine who owns the lands; defects in or
claims against the ownership; and any action needed to secure a good record
title.
This may seem to be a simple operation. It is not. It requires interpreting
numerous deeds, mortgages, wills, court decrees and other instruments;
considering the time sequence of transactions and events affecting the title;
and applying laws and court decisions to the various situations disclosed in
the applicable title information.
The examination of a title requires a thorough knowledge of many areas of law
and even when certain laws went into effect or were amended or repealed. An
examination of applicable title information may involve evaluating a variety of
problems such as the validity of divorces, the effectiveness of foreclosures,
the scope of restrictions, the presence of federal and state tax liens, and the
effect of old claims against the land.
Whether examining an old U.S. patent or passing on a deed of recent date, the
process of examination is, at every step, the consideration of legal problems.
Experience can speed up the work, but attorneys almost daily encounter new situations
requiring new legal research.
TITLE INSURANCE
Your lawyer can bolster the title examination
by issuing or obtaining for you an owner's policy of title insurance. In such a
policy, the title insurance company contracts with the insured person named in
the policy to protect the title as insured against financial loss and the cost
of defending the title in court.
But like any insurance policy, the coverage is no greater than as stated in the
policy. Any policy can list matters substantially affecting title that are
exceptions to the coverage and are not insured. Another type of policy,
mortgagee's or lender's title insurance, protects only the holder of the
mortgage and not the owner. You should not forgo owner’s title insurance
coverage because your lender has its own loan policy. In fact, obtaining both
the owner’s and lender’s title policies at the same time is not much more
expensive than obtaining a single policy.
Your lawyer representing your interest can advise the extent of protection
given by your owner's policy. Even if your attorney does not issue your title
policy (as is the practice in certain counties and often when purchasing new
residences from developers), your attorney can advise you whether the
exceptions from coverage listed in the title insurance commitment will be
appropriate under the contract or detrimental to you when they are included in
the final title policy. Some attorneys include the policy's cost in an overall
charge for all legal services. Other attorneys separate the charge, with the
cost for the policy being based on the real estate purchase price. This price
is the maximum amount for which you are insured. There is only a one-time
charge for an owner's policy, and its protection continues long after you sell
the property, so you should hold onto the policy indefinitely.
JOINT OWNERSHIP
Buyers often have the title to a home placed in
a joint ownership arrangement with special words inserted so that title passes
automatically to the survivor when one of the joint owners dies. This
arrangement is known as "joint tenancy." In Florida, when land is
owned jointly by husband and wife, it is known as an "estate by
entirety." Owning property in this manner may be a good idea for some,
but, again, it may not be good for you. You should determine the income, gift
and death tax consequences before having your home placed in joint ownership.
Your attorney can advise you regarding this important decision.
Joint ownership occasionally leads to lawsuits over a right of occupancy, the
right to the rents if not occupied by all the joint owners, and the duties of
the various owners as to payment of mortgages, taxes, and cost of repairs and
upkeep. If the joint owners are parent and child, or brothers and sisters, the
subsequent marriage of one of them may lead to conflicts and complications.
IS THE BUILDING
UNDER CONSTRUCTION?
If the home you are buying is still under
construction or has been completed recently, special care is required to make
sure that all building costs have been paid by the sellers and that you are
fully protected as to the provisions of the Florida Construction Lien Law. You
should consult your lawyer for full information as to your rights and
responsibilities under this law.
This also may apply when repairs on a house have been made recently or building
material was recently delivered.
Failure to protect against construction liens can result in the property’s
being subject to liens even though the full contract price was paid.
Be sure that the county or municipality has issued a Certificate
of Occupancy to ensure that the home has met all statutory requirements.
FINANCING YOUR HOME
Many financing arrangements are available to
today's home buyers: variable rate mortgages, conventional mortgages,
government-insured VA and FHA loans, as well as specialized mortgages designed
for specific financial institutions.
Your attorney can help you determine the most advantageous plan,
based on your needs and capabilities to repay, including certain tax advantages
appropriate to your personal financial situation.
Regardless of the type mortgage loan, you should be aware of specific terms the
lender may require such as:
• Prepayment penalties.
• Limitation of your right to sell without lender's consent.
• Maintenance of insurance levels.
• Tax and insurance escrow payments.
• Limitations on your use of the property.
• Lender's right to change interest rates if you assume an
existing mortgage.
• Lender's right to change interest rates during term of the
loan.
You also should determine if, in the future, you'll be allowed
to borrow additional money secured by the same mortgage. You'll want to ask
your attorney to explain all costs of the loan, including service charges,
appraisal fees, survey costs, escrow fees and lender's attorneys’ fees.
Remember, when you sign a mortgage note, you are ordinarily responsible for the
full payment of the total indebtedness. Even if you later sell to someone who
agrees to assume payment of the mortgage, your responsibility continues unless
the lender releases you.
CLOSING YOUR
PURCHASE
Closing a real estate sale is a technical and
complex procedure. The careful drafting of papers to carry out the actual
intent of the parties is part of the job. Meeting the technical title
requirements is another step. The proper signing and acknowledgement of papers
is another. Delivery and recording of the papers are usually the last steps.
As a careful buyer, you should insist that your lawyer be present at the
closing, checking each detail to assist you in making your purchase the
trouble-free ownership to which you are entitled.
As of Oct. 3, 2015, the law has changed so that, instead of the four documents
that had been required to comply with Truth In Lending disclosures, there are
now two documents, i.e. Closing Disclosure and Loan Estimate. The change in the
law requires that all closing documents be prepared three days in advance of
the closing date. If there are any required changes to the forms, a new
three-day waiting period kicks in. This is important, as it may delay closing
to the disadvantage of the buyer or seller.
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