Thinking of Buying a Home?
Buying a home may be the single largest investment of your life and may involve your life savings. Your dream house could have significant title defects requiring the spending of large sums of money to clear the title. Your dream house could have significant structural and system problems also requiring the spending of large sums of money to fix. This pamphlet points out some of the legal and practical issues to be considered by the wise buyer.
Q: What is the purchase and sale agreement?
A: The purchase and sale agreement is the contract that contains the price, terms and all the conditions of the sale, including restrictions of title and numerous other provisions vital to the transfer. Do not sign it before consulting your attorney--afterwards is too late, as you are bound by the contract, and you may find you have failed to retain or protect many of your rights. For example, Oklahoma law now requires sellers to disclose certain defects on property or buildings, but under some circumstances the seller only has to disclose such defects if you ask. Your attorney can ensure this and other rights are properly protected if consulted before you sign the contract.
Q: What kind of title should a person demand?
A: When purchasing a home, you should demand a “marketable” title. Your attorney, after proper investigation, can advise you whether the seller is able to convey such a title to you. A “marketable” title is one free of adverse claims, liens, apparent defects, grave doubts, and the risk of litigation.
Q: Why is a title examination necessary?
A: All documents comprising the title must be properly filed and be shown in public records. An abstract of title is a complete certified copy of these records. A title examination is a study of the abstract of title. Your attorney examines the title carefully and gives you a written opinion stating who owns the land, whether defects exist in the title, and the steps needed to make the title “marketable.” This may seem to be a simple operation. It is not. The examination requires interpreting numerous deeds, mortgages, wills, court decrees and other instruments, and applying laws and court decisions to the various situations disclosed in the abstract. Because the examination of a title requires a thorough knowledge of so many areas of law, it cannot be done adequately by anyone except a lawyer who practices in this area of law.
Q: What is title insurance?
A: In buying a home, there are two types of title insurance policies available: an “owner’s policy” and a “lender’s policy.” A mortgage lender usually will require a borrower to pay for a lender’s policy of title insurance or a lender’s title opinion from its attorney, to protect the lender against financial loss in case of title defect or failure of title to the property covered by its mortgage. A lender’s policy does not protect the buyer, who must take out a separate owner’s policy of title insurance if owner wants title insurance protection in case the title to the property is defective. You should ask for an owner’s policy, or an owner’s attorney title opinion to protect you. When the lender requires a lender’s title insurance policy to insure title for its mortgage, an owner’s policy is available for a minimal additional charge. The premium will be based on the higher amount that is insured.
Q: Why should a lawyer examine the abstract?
A: Before a loan is made, typically the title will be examined either by the lender’s own attorneys or by a title company’s attorneys. Buyers sometimes assume that this examination frees them from the need for an independent title examination. It does not. In the first place, the attorney’s opinion is directed to the client lender or to the title company--not to the buyer. The attorney is responsible only to the client for whom the attorney examined the title and the attorney cannot give you legal advice. Second, a mortgage lender’s interest in the property is different from that of the purchaser. The lender demands a margin of value above the amount of the loan and will accept some risk of future expense in perfecting the title that would leave the lender unharmed; therefore, the lender may be satisfied with a title which contains some possibility of trouble for the buyer. The buyer should have an independent attorney’s opinion, based on examination of the title by the buyer’s attorney, or obtain owner’s title insurance so that the title will not (1) trouble the buyer while owning the land, (2) require expense to correct old title defects when the buyer sells the property, or (3) cause the heirs expense and trouble when the buyer dies.
Buyers often have the title to a home placed in “joint tenancy with right of survivorship” so that title passes to the survivor when one of the joint owners dies. Owning property in this manner may be a good idea for some, but again, it may not be good for you. Your lawyer can advise you on this point.
Closing The Real Estate Transaction
At “closing” the parties meet to finalize the sale and to exchange money for the deed. Often this closing is conducted by an attorney, a title insurance company or a closing company. Extreme care should be exercised in closing a real estate sale to ensure that all your attorney’s requirements for marketable title have been met, that all papers are properly prepared and signed, and your rights under the contract are properly protected. Federal law gives you the right to copies of certain closing documents the day prior to closing. You and your attorney should review these and, if necessary, your attorney should attend the closing.
When buying a home, a purchaser must consider many factors in addition to the cost, location and condition of the property, such as:
- Exactly what property, real and personal, is included in the purchase? Is a surface interest only or a surface and mineral interest being conveyed?
- Is the seller to furnish a “marketable” title?
- What are the terms of payment?
- Is an abstract of title to be furnished, and if so who is to pay for its extension to date?
- What mechanic’s or materialman’s liens exist against the property? Has there been any labor done or material furnished on the land or buildings within the last four months, which have not been paid for, and which might be a basis for liens?
- What kind of a deed must the seller give?
- Are there unpaid real estate taxes or special assessments, and if so, who pays them?
- When is the purchaser to have possession?
- What zoning regulations affect the property?
- Are there any easements, rights-of-way, or restrictions on the property including airspace?
- Are there any covenants and/or servitudes that could affect the use of the property? Is the property part of a neighborhood association? If so, what are the requirements and annual fees?
- Have the utilities, sewer and pavement been installed and paid for? Where are the boundaries, and are all of the improvements within the boundaries? Are there any encroachments on the property from an adjacent property? What is the location of the fence, if any, relative to the property lines?
- If a survey is needed, who is to pay for it?
- Are there any mortgages on the property? If so, what are the terms and method of payment? Are any of the mortgage payments past due? Will these mortgages be released at closing?
- Are there any other liens on the property such as judgment or income tax liens?
- How much insurance is in force and how is it to be prorated?
- Who pays the sales commission and for the documentary stamps and mortgage taxes needed in the transaction?
- Will the property be inspected? If so, who pays for the inspection? What if the inspection reveals problems? Is there an inspection clause in the sales contract, making the final purchase obligation contingent on the findings of a professional home inspection specifying the terms and conditions to which both the buyer and the seller are obligated?
- Is the property located in a floodway, a 100-year flood plain, and/or a flood prone area? What is the flood, water history, and water risk of the property?
- Is there an environmental covenant on the property? Have any hazardous substances been released, disposed of, stored, or used on the property? Have any special use permits, variances, or other land-use authorizations been issued concerning waste disposal on the property? Is the property listed as a hazardous waste site or adjacent to a hazardous waste site?
- Are any of the improvements on the property constructed of materials known to be a potential health hazard to occupants of the property?
This pamphlet is based upon Oklahoma law and is issued to inform the public of some of the problems involved in buying a home. It is not intended to advise anyone on a specific legal problem. No person should ever attempt to apply or interpret any law without the aid of an attorney. For your protection before purchasing any real estate, you should seek the advice of an attorney.
Revised January 2008
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