Selling or buying a home? Legal advice is essential
It’s a great time for home buyers and sellers, with mortgage rates at historic lows. Despite all the excitement, remember that home purchase are legal transactions and that the law is involved in every step.
You have thousands, sometimes hundreds of thousands, of dollars at stake. It is important to have someone who stands up for your interests and only yours. Jane Bryant Quinn, personal finance expert, advises that whether you are a buyer or seller, your lawyer works exclusively for you …. You can hire a local lawyer who is familiar with local procedures and has the sole obligation to protect your interests.
A lawyer can assist you in negotiating all legal documents and secure the best arrangement for you. They will ensure that you get the maximum benefit of federal and state laws that govern home purchase, make sure title is properly conveyed, advise you on the best way to retain legal title to the property, as well as how it affects your taxes.
It is a good rule to not sign any paper without the approval of your attorney.
The Brokerage Agreement. A listing agreement will be required if you are selling property or using a broker. This legally binding contract can be drafted by your lawyer.
Although brokers may use preprinted forms, they are not “standard” in the sense that all Multiple Listing Service brokers use them. They are subject to negotiation, as with all legal contracts.
The key points to consider are the type of listing (can it be sold yourself and not pay a commission) When the commission is due (when it is actually completed or when the broker has found a buyer who is willing, ready and able to buy the property). The percentage of the sale price due as commission (it can sometimes be negotiated down); whether or not the broker can represent both the buyer and the seller; how long the listing with the agent is (less time is better if the agent is dissatisfied).
Are You Looking to Sell Your Property by Owner? You can save money by selling your property directly without the help of a broker. However, this will require you to do more work. An appraiser will give you an accurate estimate of the property’s value. An attorney can assist you by providing advice throughout the process. They will ensure you comply with all laws regarding real estate transactions. You will need your own lawyer to protect you if you are the buyer in such transactions.
The Sales Contract. The Sales Contract. It can be called a bid or binder, offer of purchase, sales memo or a sale memo. However, it is legally binding when both parties sign it. It also sets the terms and conditions for the entire transaction. This means that the purchase price is not the only term important. Your attorney should review the contract.
Buyers and sellers can sign contracts in many areas of the country before they have it reviewed by their lawyers. However, the contract must be approved by the attorneys within a certain time period (often five to ten days). The contract often covers important legal topics such as
- Provisions regarding earnest money (amount or initial payment, who holds it, interest rate, terms on which it can be returned/forfeited).
- What will you pay the balance of your purchase price? Cash or cashier’s cheque, assumption of an existing mortgage, purchase agreement under which monthly payments are made directly by the seller, or cashier’s check?
- Contingency clauses include financing (usually contract can’t be rescinded at a specific rate – rate, years mortgage cannot be secured within a certain amount of time), inspection (for which, in what number of days), and legal review
- The Povisions that govern what happens to property not delivered on closing day and other types of default -legal description (may require a survey).
- Provisions for “good title” (good title to be furnished, as specified by title insurance policy or other means).
- Title Iimitations (if applicable), including covenants, easements, liens and encumbrances
- No matter whether the buyer or seller pays for or receives credit for property taxes, condo special assessments, or similar expenses,
Which party is most at risk of fire or other hazards during the closing?
Obviously, any party can add language or whole clauses to the contract. This will be included in the contract as long both parties sign it and their attorneys agree.
Financing. There are many financing options available, including FHA and VA loans, adjustable rate mortgages, hybrid loans and shared appreciation mortgages.
Lender terms and conditions can differ widely, so shop carefully and ask many questions.
Don’t forget to consider the legal aspects of home-buying. These include whether or not you should use a broker to help you with your mortgage, and your contract with that broker, if applicable), your rights as a borrower (provisions for discrimination, access to the annual percentage rate [APR], etc. The tax implications of these options and their effects on financial planning (including estate plan)
The promissory notes you sign are legal contracts that set out the terms and conditions for your loan. A mortgage (sometimes called a “deed-of-trust” in some places) is a legal document that provides security for the lender. It gives the lender an interest on the property until it is repaid. If you fail to live up to the contract, the property can be foreclosed.
Sometimes buyers and sellers agree to an arrangement where the buyer moves in, pays the seller directly over a number of years and then receives title once all payments have been made. These are complex arrangements and should be carefully reviewed by both the buyers and sellers.
Closing. The closing is the final meeting of the transaction. The parties and their lawyers will ensure that the closing takes place.
- All provisions of the sale contract must be adhered to
- All other documents required are signed, including the mortgage promissory note.
- All payments have been made and all credit granted.
- The property is officially transferred from the seller to the buyer.
Closings can come with many fees. Buyer and seller may be charged recording fees, transaction taxes and appraisal fees. Title fees and title insurance costs can also be added depending on where the transaction is taking place. The seller and buyer can negotiate who pays what in a sales contract. Local custom usually determines who pays which fees if they don’t agree.