The purchase of real estate is a complex transaction. In addition to the unfamiliar vocabulary, there are a series of complex legal and title issues that will arise. The attorney’s role is to guide you through this process. From the start, the attorney will be able to advise you on the transaction, the potential liabilities involved, and the tax consequences that will follow. The attorney will review all the details of the transaction, ensuring that your needs are met and that documents carry out your actual intent. Having an attorney’s participation is critical in protecting your investment and your financial security.
Before a real estate closing, an attorney will:
- Review the Contract for Purchase and Sale and advise you on the legal consequences and obligations;
- Advise you on the deadlines provided in the Contract;
- Explain any potential liabilities that you may be assuming;
- Help you understand the effect of any existing mortgage and/or construction lien;
- Discuss alternative means of financing;
- Discuss how you should take title, i.e. personal, joint, or corporate;
- Inform you of where and how to file for homestead exemption; and Review how to insure for fire, liability and other hazards.
An attorney will perform many important services, depending on the transaction, such as:
- Obtain a title search, evaluate the status of titles, and require appropriate legal remedies to clear defects;
- Prepare or review the Closing Statement and other closing documents, and inform you about any stipulations that may adversely affect your interests;
- Interpret and counsel you about all legal documents related to the title and transaction, including deeds, mortgages, and closing statements;
- Prepare a bill of sale to cover any personal property included in the sale;
- Advise how title should be taken, and the effects this may have on your business or your personal estate;
- Investigate zoning ordinances and other governmental use restrictions;
- Discuss the income, estate, and gift tax consequences to your estate;
- Check unrecorded municipal liens, such as sewer and special assessment liens;
- Advise you on what the title policy does not protect against, emphasizing insurability and marketability;
- and Explain the property tax structure.
What is title insurance?
Having clear title to the property you are purchasing is essential. This means that, after the closing, the title will be free of prior indebtedness or other defects or encumbrances. When the title is free and clear, it is known as “marketable title”. The transfer of a deed alone does not ensure that you are receiving a marketable title.
An attorney can help you ensure the marketability of the title that you are receiving by conducting a title examination of the property. This involves researching the public records to disclose the previous owners or record, prior deeds, mortgages, court judgments, probate proceedings and divorces, foreclosures, tax and construction liens, and other matters that could affect title. If this research reveals any defects in the title, the seller may be asked to undertake legal proceedings to clear the defects.
Even so, there are hidden defects, which may not appear even in a thorough title examination. These could include:
- Lost or forged deeds;
- A married signer who represents himself or herself as single;
- Claims of undisclosed heirs; Impersonation of another;
- Clerical error made at the courthouse when earlier documents were recorded;
- Incorrect legal description; Instruments signed by minors;
- Instruments signed by mentally incompetent persons;
- Title taken as a result of an improperly probated will;
- or Confusion of title resulting from similar names.
Title insurance will help protect you and your property against such hidden defects, by covering the costs of defending your title in court, should the need arise. Note that while your lender will insist on title insurance in the amount of the mortgage loan, such a policy does not protect your ownership interest. You need an owner’s policy for that. The owner’s title insurance policy is an agreement that the insurer will pay all losses involved in any claim covered by thepolicy terms. The policy provides two types of coverage:
- If someone contests you insured title in a legal action, the insurer will defend the title at not expense to you.
- If there is a defect in your title which cannot be eliminated, title insurance protects you from financial loss. Thus, you will be reimbursed up to the amount of the policy – generally, the full amount of your loss.
You pay a one-time premium for title insurance, and the protection continues in effect forever — even after you sell the property involved.
An attorney, trained in the complexities of real estate law, is the best-qualified person to issue your owner’s title insurance policy. Note that a title agency only prepares documents for closing and issues your title insurance policy. The title agency does not provide you with legal advice and does not represent your legal interests.
The Layers
Many people are involved in a real estate transaction. It is important to know what their roles are and who they represent.
The Real Estate Agent or Broker
An agent can help the buyer find the property that is to be purchased, and provide general information regarding the market, neighborhoods, etc.
While agents can be very helpful, buyers should be aware that an agent may be working for the seller and thus may be sharing in the commission. Do not assume that what you say to an agent will be kept in confidence. If you choose, you can hire a buyers agent, who will represent your interests.
The Seller
The Seller may be represented in negotiations by the real estate agent or by an attorney.
The Loan Officer
As a representative of the financial institution who will handle the mortgage on the property being bought, the officer must determine that the buyer is a good credit risk. The loan officer is the one who qualifies the buyer and negotiates the financial arrangements.
The Settlement Agent
The settlement agent handles funds in escrow, disburses funds, and provides title insurance. Generally, the buyer and the seller agree on whose attorney will serve in this capacity.
The Seller’s Attorney
The attorney hired by the seller to protect his interests in the transaction.
The Buyer’s Attorney
The attorney hired by the buyer to safeguard the buyers interests.
The Appraiser
A certified or licensed expert who states his or her opinion of the fair market value and the quality of the property. This determination is based on a visit to and evaluation of the property. Appraisers are assumed to be unbiased, no matter who is paying their fee. Note, however, that if you doubt the evaluation, you may hire another appraiser for a second examination.
The Home Inspector
The Inspector also examines the property, but much more thoroughly than the appraiser. The Inspectors role is to provide an objective evaluation of the structure and systems of the building involved. An inspection will be required if you are asking the seller to provide a warranty on the house.
The Surveyor
A surveyor will locate and measure the exact lot lines to make sure they correspond to the dimensions as described on the deed.
The Termite Inspector
You should always have the property being bought or sold inspected for termites, to ensure that there is no termite infestation.