For most people, the purchase of a home is the biggest single investment of their lives. You should, therefore, be extremely careful. The buying process can be filled with potential problems. The house may seem to be ideal in appearance and cost, but it may contain hidden problems that will cost you additional monies that you may not have budgeted. This may be from additional repair costs, or even paying for repairs or similar costs more than once. Also, there may be legal conditions that affect your use or enjoyment of the property that may not be ascertainable from just visiting the property. For example, there may be a easements or rights-of-way over the land that permits someone to drive across the property or use your property for parking or other purposes. There may be zoning regulations that permit the construction of a factory or commercial building on an adjacent lot, or there may be private restrictions affecting the use or ownership of the property or imposing monetary assessments. It is possible that a title problem may prevent a later sale of the property and require a large sum of money to remove. These are only a few of the problems that may arise, but they show the importance of being careful, and either knowing and understanding the process of buying a home, and having an attorney familiar with these kinds of issues to assist you.
Here are some things to keep in mind when contracting to buy a home:
Have you asked the Seller what kinds of problems have there been with the property?
Have you had an inspection of the property by a qualified inspector?
If the home was built before 1978, has the seller given you the Lead Paint Disclosures required by federal law?
Are there any serious physical defects in the property and how can you be protected against such hidden defects?
Exactly what is included in the purchase?
What zoning regulations affect the property?
Have the utilities been installed and paid for?
Are there any easements or restrictions on the property?
Are there any unpaid real estate taxes or special assessments, and if so, who pays them?
How are current real estate taxes and special assessments to be prorated?
Are there mechanics' liens, tax liens, or any other liens against the property?
Is the seller able to furnish a "marketable" title?
Will a title insurance policy be issued, or will you rely only a the title report?
What kind of deed must the seller give you?
What inspections should be made to the property before closing and does the seller have any responsibility for curing any discovered defects?
What are the terms of payment?
When can you have possession?
Do you have an attorney to review and approved the purchase agreement before you sign it?
Who will be responsible for fire or casualty loss if that occurs after signing the contract, but before title is transferred?
What is a purchase agreement?
A purchase agreement is the document that describes all of the terms of the sale. It should include all of the terms of the sale, including the price, the terms of payment, the type of deed to be given, the date of possession, provisions for the furnishing of title insurance, proration of real estate taxes, what happens if the property is damaged by fire or vandalism before closing, any other matters which is important to the seller or the buyer. This may include various contingencies, such as financing, inspections, the sale of an existing residence, etc. You may also want to provide for what happens with window treatments, appliances, and sometimes even some of the furniture.
The important thing to remember is that you should consult your attorney before you sign the purchase agreement. All too often, a prospective buyer will sign a purchase agreement to buy a home and then call an attorney for advice. When this happens, the attorney can only tell the purchaser what rights are covered by the agreement; the purchaser may have signed away many rights. Had the purchaser consulted an attorney before signing, the attorney could have specified what rights should be included in the agreement. When contracting to purchase a home to be constructed or which is in the process of being constructed but is not yet completed, many other important considerations are involved that should be discussed with an attorney.
Remember to never sign a purchase agreement until after it is reviewed by your attorney. Once you sign the contract, there is not much that can be done to change the contract afterwards.
Is a purchase agreement enforceable?
To be enforceable, a purchase agreement must only be in writing and be signed by both the seller and buyer and, if the seller is married, by the seller's spouse. There is no right of recision period for either the buyer or the seller if you change your mind a day or two after signing the contract.
What kind of title should I demand? When purchasing real estate, you should always demand a "marketable" title. A "marketable" title is one which is free of all claims by third parties that would prevent you from being able to the property again yourself. Your attorney can advise you whether you can obtain such a title.
Should the title be examined or reviewed by an attorney?
Absolutely. Prior to closing, it is essential that adequate title evidence be provided to the buyer and reviewed by an attorney. The type of title evidence and who pays for it are matters of contract and community custom. In most communities, an Owner's Title Insurance Commitment and Policy will be provided. A mortgage lender will probably require a lender's commitment and policy. Obtaining an owner's policy and a lender's policy at the same time is usually the most cost efficient of protecting your investment in the real estate. Title insurance is the best protection for a buyer.
Should you employ the attorney who examines your title?
It is always best for both the buyer and the seller to hire their own attorney. In most home purchases, the buyer will borrow money from a bank or mortgage company. The Mortgage lenders will have their own agents examine the title to property to protect their "investment." Buyers oftentimes assume that this examination frees them from the need for an independent title examination. It does not. A mortgage lender's interest in the property differs from the buyer’s interest. The lender demands a margin of value above the amount of the loan. If foreclosure becomes necessary, some expense in clearing the title would not harm the lender. The mortgage lender knows that most mortgages are paid and that small title defects in those cases will not cost any money; therefore, the lender may be satisfied with a title that still contains some possibility of trouble for the buyer. Although a mortgage company’s interests and a buyer’s interest are similar, they are not the same. The mortgage company is looking to protect themselves, not to protect the buyer.
Is a "warranty" deed a substitute for a title examination?
No. First of all, a "deed" is the document that shows who owns the real estate. A warranty deed is a type of deed whereby the seller warrants that he (or she) has good title, and nobody has better title to the property than the seller. The value of the warranty is only as good as your ability to collect payment from the seller after a lawsuit against the seller for the breach of his or her warranty. If the seller is dead, or has filed for bankruptcy, you may not be able to collect, even if you obtain a judgement against the seller in a lawsuit. Although a warranty deed is desirable, and the buyer should insist on this type of deed, a "warranty" deed aby itself is not enough. To be safe, the buyer should insist on a title insurance policy to protect their investment..
What is title insurance?
Title insurance is a contract between you and an insurance company. It is insurance to protect the buyer if there are problems with the title to the property. Under the terms of the policy, the company ensures that you hold a marketable title to the real estate you are buying. Most policies cover you against all defects of title whether in or outside of the record; however, exceptions to coverage may be contained in the policy, and you and your attorney should check the policy for any exceptions. Sometimes these exceptions can be removed. The amount of the insurance policy is typically based on the purchase price of the real estate.
What is the "closing"?
At closing session, the company that is helping you complete the purchase makes sure that all of the terms of the purchase agreement have been satisfied. They collect the funds being used to purchase the real estate. They use these funds to pay off any existing mortgages or liens, pay the transfer taxes, and other closing costs. They also prepare a summary of all the expenses of the transaction. They then record the deed, and disburse the net proceeds to the seller A final check should be made of all papers to see that the intent of the parties has been carried out. For protection, you should consult with your attorney to determine if you need legal representation at the closing.