Buying or Selling a Home, Refinancing Your Mortgage, Do I Really Need My Attorney?
By: Joseph F. Vargo, Rhine Ernest LLP
A home is the largest single asset most people will acquire during their lifetime, and a mortgage on a home is often the single largest debt obligation many will ever incur in their lifetime. Does a person really need an attorney when buying or selling a home or obtaining financing for an existing home?
Selling or buying of real estate can become a complex transaction. Abstracts of title, purchase agreements, deeds, title opinions, title insurance, and closing are all terms you will become familiar with regarding a real estate transaction. Often in the excitement of the purchase of a new home people are unaware of, or overlook the pitfalls involved in such a transaction. With such a huge investment at stake, it makes sense to have your law firm represent and advise you in such a transaction.
When buying or selling real estate, an executory contract, often referred to as a purchase agreement, should be drafted and executed by the buyer and seller. This document establishes the parties intent to buy or sell the real estate and governs their rights until closing. The sale price, date of closing, responsibility for payment of taxes, responsibility for damages prior to closing, financing contingencies, and many other issues are covered by such a document.
The seller of real estate is responsible for providing evidence of merchantable title to the real estate in question. This is done by providing the buyer an updated abstract of title or title insurance. An abstract of title is a condensed history of the real estate as shown in the records of the recorder's office of the county in which the real estate is located. On behalf of the seller, an abstractor or an attorney will check the records of the county recorder from the date of the last abstract certification to the present date and compile any additional records into the abstract which would affect title to the real estate in question. Title insurance is an insurance policy which is prepared by an attorney insuring good title to the real estate in question.
Once an abstract of title or title insurance commitment has been furnished to the buyer by the seller, it is the buyer's responsibility to determine if he is receiving good title to the property. This is done by having an attorney review the abstract render a title opinion as to the status of title. In the case of title insurance, the attorney reviews the exceptions listed in the commitment, making sure that there are no liens or unacceptable clouds on title. The term caveat emptor (let the buyer beware) applies to real estate.
The term closing refers to the event at which time legal title to the real estate is changed from buyer to seller. Typically a warranty or quitclaim deed is employed to convey the real estate. A warranty deed provides that the seller is the legal owner of the property and that the real estate is free from encumbrances. A quitclaim deed merely provides that the seller is conveying his or her interest in the property, whatever interest that may be. If the seller only owns a partial interest in the real estate, a quitclaim deed only conveys that partial interest to the seller. Again caveat emptor applies.
Of importance to the buyer is the question of how they will hold title to the property. If there is more than one buyer, typically a husband and wife, title may be held in joint tenancy, tenancy by the entirety, or tenancy in common. The main difference in these types of ownership is that joint tenancy and tenancy by the entirety include a right of survivorship. Once a right of survivorship is in place, if one of the owners of the property dies, title will automatically vest in the other owner. With ownership by tenancy in common, each party owns an undivided interest in the whole. If that party were to die, his or her interest would be distributed according to his or her will or by intestate succession and not by survivorship. Buyers of real estate should consult with the law firm that handles their estate planning, as the way real estate is titled can carry tax consequences and present estate concerns upon your death.
Most people when purchasing real estate must obtain financing from a lending institution and this is done by a promissory note and a mortgage. A mortgage is an interest in real estate created by a written instrument which provides security for the payment of a debt. In other words the bank lends you money and you give the bank a lien on the real estate. Often people with real estate will refinance their mortgage several times during their lifetime. When obtaining financing the lending institution will require a title opinion or title insurance both of which are prepared by attorneys, the cost of which is charged to you as closing costs. Most local financial institutions in this area will use attorneys of their choice unless you insist otherwise. In such a scenario you may have an attorney you do not know or worse, one you are not comfortable with doing your legal work. You are the one paying for this service, and you should insist that the law firm that you trust and are familiar with handle your title work.
Buying, selling, and financing a home raises many issues and possible pitfalls of which the buyer and seller may be unaware. With such large investments at stake, it is wise to consult the law firm you trust to protect your interest. At Rhine Ernest LLP our attorneys have more than 50 years of collective experience in real estate transactions. We routinely update abstracts, write title insurance, provide title opinions, draft purchase agreements and deeds and consult and advise both buyers and sellers from the moment of the initiation of a real estate transaction through closing.