OVERVIEW OF REAL ESTATE TRANSACTIONS

Home ownership is the American Dream. Having a place to live that belongs to you and your family symbolizes freedom, independence, and security. This desire is deeply rooted in our culture, and goes back centuries before the founding of the United States. Even so, the idea of owning property is often somewhat intimidating to first time homebuyers. The basic problem is that ownership of real estate is not as simple as you either own something or you don’t, it’s a question of exactly what one owns. This uncertainty causes hesitation to enter the home buying market, and causes doubt during the process of buying a home. While the uncertainty may go away on its own after closing, unanswered questions can sometimes lead to unpleasant surprises.

When purchasing a home, particularly your first home, one should first assemble the team of professionals who will assist and advise them through the process. The three key team members are the Attorney, Realtor, and Lender. It is advisable to identify all three before starting the process of selecting a home, and understand their roles.

The Attorney

Many buyers wait until the closing is set to engage an attorney. It is better to involve the attorney early, as your contract will contain obligations and rights in addition to showing up at Closing to exchange documents and money; your attorney can help ensure that time limits are met and that unforeseen issues are resolved prior to Closing. If you haven’t selected an attorney before signing the contract, you may find yourself shopping for one at the last minute, asking if they have the time for your transaction, or if they even handle real estate matters. It is better to go through the selection prior to signing the contract, while you have the time to select one that you feel comfortable will represent your interests.

The Realtor

Realtors know the area, and based on information you provide, they can help you quickly find the right home for you. They need to know your financial status, so that they can guide you to the right price range, and they may know of certain Lenders who have special loan programs for which you might qualify. They need to know what is important to you, whether it is having a great hilltop view, or being allowed to plant a garden, or being in a specific school district, or having lakefront property with a dock. Realtors have access to information about properties available in the area, and not only know what is for sale, but can tell you what similar properties have sold for recently.

The Lender

Many Realtors suggest that prospective buyers contact one or more lenders before starting to shop for a home. Getting pre-approved for a loan is beneficial, because it establishes the price range from the beginning, allowing you to make an offer with greater confidence. Some of the documentation that lenders require can take some time to obtain, such as tax records, or statements from other creditors that an account has been fully paid, so it is a good idea to contact the lender early in the process. Not all loans are alike, and most lenders have more than one set of terms available. You need to consider any options you have regarding obtaining a fixed or variable interest rate, and whether to choose a 30 year repayment term, or something shorter.

DEFINING “OWNERSHIP”

The first part of defining what is owned is identification of the property. The “legal description” is more detailed than the address, which the contract will probably use. A full description will contain the physical boundaries of the property in some manner that is clear and knowable, most often by reference to one or more fixed landmarks, or a map filed with the Town Clerk.

However, there is a lot more to defining ownership than the boundary lines. There is the question of who owns the property now, and ensuring that they have legal capacity to convey the property. This is determined by a “title search”, which is often one of the first things your attorney will want to happen after signing a contract. Most home contracts are contingent upon a search showing that the Seller actually has the right to convey, by examination of the history of the records of title. Even with such a search, there can be unexpected defects to the title, including the incapacity of a prior owner, or the failure to properly record documents related to the current transaction, including the release of any current mortgages. The best protection against unexpected problems of this nature is to purchase a policy of Title Insurance.

Ownership of property is often referred to by lawyers as being “a bundle of rights”, and ownership of most residential homes actually includes only some of these rights. When buying a vacant piece of land, one might expect to receive all rights associated with the land, including the right to grow and harvest a crop, the right to extract minerals, the right to build a home or business enterprise, and most particularly the right to exclude all others. However, in residential areas, ownership of a home is almost always less than total, in terms of there being some rights regarding the property that belong to someone else. It is important to understand what rights have been separated from the property one is considering.

The most commonly understood instrument that separates some of these rights from the owner is a Mortgage. A Mortgage is a written agreement where the home is placed as security for another obligation, most often a loan for money to buy the home itself. The Mortgage gives the Mortgagee the right to become the owner of the property in the event the obligation is not met. In addition, the Mortgagor often gives up certain rights or takes on certain additional obligations. These obligations usually include maintaining the property, payment of applicable taxes, maintaining hazard insurance, and the obligation to keep the Mortgagee informed of any actions that might lead to ownership of the property being transferred to someone else (lawsuits, government action, et cetera.) Most of these additional promises in mortgages are not difficult to meet, but if they are not understood, the Owner can find themselves surprised with legal problems that could have been easily avoided. The solution is to make sure one understands the mortgage before signing, and take the time to have competent legal counsel explain anything that is not clear.

Another way that rights become separate from that which a buyer is purchasing is in the area of Restrictions. These restrictions can come from Federal, State, or local authorities, or by restrictions on the property in a deed from some prior owner. These restrictions on how a property may be used are often intended to protect the property values in the area, and the owner generally gains the same rights in surrounding properties that he gives up in his own. For example, a city may place a limit on how many persons may occupy a dwelling of a particular size, and what sort of animals may be kept on the property, or how close to the property lines a structure can be built. A subdivision may have been created which not only defined the boundaries of the lots, but may have set limitations on the height, or specified the minimum and/or maximum square footage of homes that could be built, and may have prohibited placing a mobile home on the property. There may even be an association with the right to approve external aesthetics of the property, to include color, material, and placement of ornamental trees. If the restrictions on a lot specify a minimum building size, one is not buying the right to build a house of less than that size; that right has been separated from the property and belongs to someone else. Often it can be a challenge to determine who the precise owner or owners of that right might be. The solution is, again, to consult with competent counsel, who will examine the appropriate records to determine whether or not the restrictions will impact your plans for the property.