A project of the Residential Real Estate Committee of the Real Property Council of the Real Estate Section of the Minnesota State Bar Association.
|II.||THE ROLES INVOLVED IN A RESIDENTIAL REAL ESTATE TRANSACTION|
|IV.||THE CONDITION OF THE PROPERTY|
|V.||THE OFFER AND ACCEPTANCE|
|VI.||THE PURCHASE AGREEMENT|
|VIII.||TITLE INSURANCE, TITLE OPINIONS AND TITLE ISSUES|
|X.||POSSESSION OF THE HOME|
|XII.||"FOR SALE BY OWNER" ISSUES|
|XIII.||REAL ESTATE TAXES AND SPECIAL ASSESSMENT ISSUES|
|XIV.||HOW TO HOLD TITLE TO YOUR PROPERTY|
|Abstract of Title:||A condensed historical summary of the ownership of a piece of property showing all recorded documents that affect the land including transfers of ownership and any right that persons other than the owner might have in the land.|
|Abstract Property:||All property which has not been brought into the registered (Torrens) land system, and of which evidence of ownership is determined by examining an Abstract of Title. Evidence of ownership of this type of property is maintained in the office of the County Recorder for the county where the property is located.|
|Addenda:||Separate writings that become part of the purchase agreement.|
|Appraisal:||The estimate of value made by an impartial expert.|
|Arbitration:||The process in which a dispute is decided by an arbitrator, whose decision is binding.|
|Assessment:||Costs charged against property for public improvements that benefit the property.|
|Assumable:||A mortgage the responsibility of payment for which can be taken on by a buyer.|
|Bill of Sale:||A written agreement by which one person transfers his or her personal property to another person.|
|Broker:||A person or entity licensed to represent buyers or sellers in the purchase or sale of real estate.|
|Cancellation of Purchase Agreement:||Can be accomplished by a written agreement between all parties to the purchase agreement, or by following the requirements of Minnesota Statute Section 559.21 when the buyer has breached the terms of the purchase agreement.|
|Certificate of Title:||A certificate maintained by a county Registrar of Titles that shows ownership of non-abstract real property.|
|Closing:||The meeting for the sale of property at which the transfer is finalized.|
|Closing statement:||An accounting of funds to the buyer and the seller at closing. (Also called a settlement statement or "HUD-1").|
|Conciliation Court:||Small claims court where parties can have claims valued at $7,500 or less decided quickly and inexpensively.|
|Condominium:||Individual ownership of separate parts of a building plus joint ownership of the common elements.|
|Construction loan:||A loan where money is advanced as construction takes place.|
|Contingency:||A future event or action which must occur before the purchase agreement is valid.|
|Contract:||A legally enforceable agreement to do or not to do a certain thing.|
|Contract for Deed:||A contract that allows a buyer to take possession of property in exchange for monthly payments until the balance is paid off. The seller keeps legal title to the property until the final payment is made, at which time the seller conveys the land to the buyer.|
|Conventional loan:||Real estate loans that are not insured by the FHA or guaranteed by the VA.|
|Counter offer:||An offer made in response to an offer.|
|Deferred Special Assessment:||Special assessment which has been levied but collection of which has been delayed.|
|District Court:||The court of general jurisdiction in Minnesota.|
|Dual Agency:||Representation of two or more parties in a transaction by the same real estate agent or broker.|
|Earnest Money:||Money paid by a buyer to show the buyer's good faith in making an offer to purchase property.|
|FSBO:||For sale by owner (pronounced "fizbo").|
|Homestead Tax:||Property taxes paid by property owners who live on the property.|
|Levied Special Assessments:||Assessments charged against the property following a hearing by the assessing authority and a determination of the dollar amount to be charged each property.|
|Listing Agreement:||A written agreement allowing a real estate agent to sell a homeowner's property.|
|Loan Origination Fee:||The fee a lender charges for processing a mortgage application.|
|Maintenance Fees:||Fees paid by a property owner to the owner's association for upkeep of the common elements.|
|Mortgage:||The pledge of real estate as collateral in exchange for a loan.|
|Mortgage Discount Points:||Prepaid interest on a loan; one mortgage discount point equals 1% of the total mortgage loan.|
|Note:||A written promise to repay a debt.|
|Owner's Duplicate Certificate of Title:||A duplicate copy of the original Certificate of Title issued by the County Registrar of Titles to the owner of property under the Torrens System.|
|Pending Special Assessment:||An assessment existing after an assessing authority's order for an improvement to be made; the exact amount of this assessment is unknown ("pending").|
|Purchase Agreement:||A contract for the purchase and sale of real estate.|
|Quit Claim Deed:||A deed that transfers to the buyer the rights of the seller in the land without promising that the seller has full title or that there are no liens against the land.|
|Special Assessment:||Costs charged against property for public improvements that benefit the property.|
|Survey:||A mapping of land boundaries and improvements and easements on real property.|
|Title Insurance:||An insurance policy purchased for protection against most title defects.|
|Title Opinion:||A lawyer's written statement of the current condition of title for a parcel of land.|
|Torrens System:||A state-sponsored method of registering and maintaining land titles. Record of ownership of this type of property is maintained in the office of the Registrar of Titles for the county where the property is located.|
|Warranty Deed:||A deed in which the seller promises that the title to the land is good and complete.|
Generally speaking, the parties involved in a residential real estate transaction, and their respective roles, are as follows:
A. THE LISTING REAL ESTATE AGENT -- The listing real estate agent (or seller's agent) is a licensed real estate salesperson who, acting on behalf of a real estate brokerage company for which he or she works enters into a Listing Agreement with the owner of a house. In a Listing Agreement, the listing agent agrees to assist the owner in selling the house and the owner agrees to pay the listing agent for his or her efforts. Compensation to the agent usually takes the form of a commission which is paid if and when the sale of the house closes, and it is calculated as a percentage of the purchase price of the home. Generally, although a seller will deal with an individual agent, the agent is acting on behalf of a real estate brokerage company, and the Seller's agreement is with the company, not the individual.
The listing agent's role is to assist the seller in marketing the house, showing the house to possible buyers, finding a buyer at a price and terms acceptable to the seller, and facilitating the closing of the sale and the transfer of possession and occupancy from seller to buyer. The listing agent may participate in the negotiation of sale price and terms between buyer and seller, and may prepare a purchase agreement and related documents from standard forms. The listing agent is not allowed to provide legal advice to any party, unless the agent is also a licensed lawyer.
The listing agent, and the brokerage company for whom he or she works, owe the following duties to the seller:
|(i)||Loyalty - to at all times act only in the best interest of the seller;|
|(ii)||Obedience - to carry out all of the seller's lawful instructions;|
|(iii)||Disclosure - to tell the seller all material facts which might affect the seller's decisions;|
|(iv)||Reasonable Care and Skill - to use reasonable care and skill in representing the seller; and|
|(v)||Accounting - to account to seller for all money and property he or she receives as the seller's agent.|
The listing agent and his or her brokerage company may not also represent the interest of a buyer unless the agent obtains a written agreement from the buyer and has obtained the buyer's and seller's written consent after making a full written disclosure to seller of the conflicts of interest involved in representing both parties, and the resulting limitations on the agent's ability to represent the seller's interests. At times, a listing agent may assist a buyer in limited ways as necessary to finalize a sale, but that does not make the listing agent the buyer's representative or advocate; the listing agent still represents only the seller unless a specific agreement for dual agency has been entered into.
B. THE BUYER'S REAL ESTATE AGENT -- The buyer's real estate agent is a licensed real estate salesperson who, acting on behalf of a real estate brokerage company, enters into an agreement with a person seeking to buy a house under which the agent agrees to assist the buyer in finding and purchasing a house. The buyer's agent may be compensated by the buyer directly or may agree to share in the commission paid by the seller to the listing agent at closing. As is the case with the listing agent, the contract for the services of a buyer's agent is generally with the brokerage firm for whom the agent works. The buyer's agent and his or her brokerage firm owe the buyer the same duties of loyalty, obedience, disclosure, reasonable care and accounting as the listing agent owes the seller. As with the listing agent, the buyer's agent may assist in the negotiation and preparation of a purchase agreement and related documents from standard forms, but may not give legal advice unless he or she is a licensed lawyer. The buyer's agent and his or her brokerage firm may not also represent the interests of a seller unless the agent first obtains a written agreement from the seller, and also obtains the buyer's written consent after making a full disclosure to the buyer of the conflicts of interest involved in representing both a buyer and a seller, and the resulting limitations on the agent's ability to represent buyer's interests.
C. THE LAWYER FOR THE BUYER/SELLER -- Either the buyer or the seller, or both, may hire a lawyer to represent their interests in the purchase or sale of a house. In some cases, the terms of a lawyer's representation, including the scope of his or her work and the fee for that work, are set forth in a written agreement between the lawyer and the client; in others it is not. A lawyer's role can be as broad as his or her client wishes it to be, and can include review and/or preparation of the client's agreement with the real estate agent and the purchase agreement and closing documents, as well as a review of the abstract of title, commitment for title insurance, or other evidence of title to ascertain that title to the property is acceptable. At closing, a lawyer can assist in making sure that all necessary documents are properly executed and delivered and that the sale proceeds are properly paid out and accounted for. With telephone and fax technology, lawyers can often "participate" in a closing without being physically present. If a transaction fails to close, a lawyer can advise his or her client as to the client's rights and remedies.
A lawyer's fee is not dependent upon the successful closing of the transaction. A lawyer is ethically bound to competently and thoroughly represent the interests of his or her client only, and is also obligated to keep confidential all communications with his or her client relating to the purchase or sale. It is rarely appropriate or advisable for the same lawyer to represent both the buyer and seller of a house. In such a case, the lawyer must obtain written consents from both parties, after making a full disclosure of the conflict of interest involved in representing both parties, and the resulting limitations on the lawyer's ability to fully represent either side's interest. The written waiver should include an acknowledgement that if a dispute arises between the buyer and seller, the lawyer must withdraw from representing either of them.
D. THE TITLE INSURANCE COMPANY -- In almost all cases where the buyer is obtaining financing by a mortgage loan from an entity other than the seller, the buyer's lender will require that it be provided with a policy of title insurance from a title insurance company. The policy insures that the lender's mortgage interest called a "lien", is valid and not subject to title defects. In many cases, whether or not a mortgage lender is involved, the buyer may also wish to have a title insurance company provide buyer with a policy of title insurance which insures buyer's ownership interest against defects in title. In some cases, both a lender's and an owner's policy of title insurance are purchased; in some cases only one or the other. The title insurance company collects separate premiums for the owner's and lender's policy. The buyer is generally required by the lender to pay the premium and other costs involved in issuing title insurance to the lender. However, the buyer does not receive title insurance for its ownership interest unless buyer also pays an additional (usually discounted) premium for owner's coverage.
The title company will issue a document called a "Commitment for Title Insurance" which indicates (a) what requirements must be complied with at or prior to closing as a condition to issuing its insurance and (b) the matters affecting title which will not be insured against if they are not taken care of at or prior to closing. Frequently, a representative of the title insurance company will administer the closing of the sale and see to it that the requirements for the issuance of the insurance are satisfied and that matters affecting title are dealt with. The title company will not necessarily address all matters affecting title unless its customer -- i.e. the party whom it is insuring, requires that it do so. The title company representatives do not represent you and are not allowed to give you legal advice - including advice regarding which matters affecting title should be addressed and eliminated, and which can remain as exceptions to the insurance being provided.
E. THE CLOSERS -- A closer is a person, generally an employee of a title company or brokerage firm, who administers some element of the closing in exchange for a fee. There may be more than one closer at a closing. When a lender is involved, its closer (usually a representative of the title insurance company) will see that all the mortgage loan documents are properly signed and that the documents transferring title to the buyer are properly signed and delivered. The buyer will usually pay the fee for this service. The seller may also have a closer act on seller's behalf at closing. Typically, a seller's closer will assist with obtaining information necessary to pay off existing liens and mortgages, preparing a warranty deed and bill of sale to transfer title to the house and personal property, and accounting for the payment and application of the sale proceeds. The seller's closer will be paid a fee for this assistance. Lawyers for buyer and seller can perform the tasks of a closer, but closers are generally not licensed attorneys and therefore should not be relied upon to provide legal advice to either party.
F. THE MORTGAGE LENDER -- Mortgage lenders provide buyers with financing for the purchase of a home.
G. THE MORTGAGE BROKERS -- Mortgage brokers work on behalf of mortgage lending companies and borrowers. They line up people seeking loans with companies making loans. They generally get paid by lending companies on a commission basis, and by borrowers based on written fee agreements. Mortgage brokers are similar in many respects to insurance brokers, except that the "product" they sell is mortgage financing, not insurance. A mortgage broker may work only for one lending institution, or it may be independent and offer financing options from many different lenders.
A lawyer should be the first real estate professional you hire. Talk with several lawyers before choosing one. Ask friends for names of real estate lawyers they have used and whose services they have been happy with. Be sure to discuss fees up front. If you need help finding a lawyer, you can contact the state or local bar associations for assistance.
In such a significant and complex thing as a real estate transaction, it is important that you carefully select your real estate agent. You should talk to several agents before choosing one and ask them about the following items:
Both the buyer agency agreement and the seller's listing contract that your real estate agent may ask you to sign have a significant impact on your rights and should be negotiated or at least reviewed by a lawyer. While the contracts are usually presented to consumers as standard forms, many terms can be negotiated. Real estate agents compete for your business and may often be willing to accept concessions in negotiations (consider that a 1% reduction in commission on the sale of a $100,000.00 home is a $1,000.00 savings). Terms you and your lawyer can negotiate include:
|a)||the duration of the agency agreement or listing contract;|
|b)||duties that your agent will owe you (e.g., loyalty, full disclosure and obedience);|
|c)||the amount you will pay to your broker;|
|d)||the amount that cooperating brokers should be paid;|
|e)||disclosure of any referral fees being paid by your broker;|
|f)||when the broker's commission is and is not earned (e.g., earned upon successful closing or when the broker finds a suitable buyer or not earned if the sale is to one of your relatives or neighbors); and|
|g)||whether you have a right to use other brokers' services.|
A real estate agent can represent buyers and sellers in several different ways and you need to be very cautious in choosing the level of representation that your agent will provide to you. The choice is yours. An agent can represent either a buyer or seller exclusively, or he or she can represent both parties in the same sales transaction (called "dual agency" since the broker acts as the agent for both buyer and seller). Your lawyer can assist you in determining how to assess the benefits and dangers of the different levels of representation, including the lowest level of service, and the one to be most cautious about - dual agency. Dual agency is really no agency at all. Although most people contract with a real estate agent for their expertise and assistance, a dual agent must legally withhold his or her expertise and assistance to a large extent because the agent is actually representing two competing sides of a transaction at one time (the buyer and the seller) and is not supposed to promote the interests of one party to the detriment of the other. Because you want your real estate agent to provide you with the best and most complete service possible, and because real estate agents do not always fully explain their role in your home transaction, you should consult a lawyer before agreeing to any agency relationship so that your lawyer can help you understand and negotiate the terms of your relationship with a real estate agent.
Whether you can make a claim and against whom will depend on the nature of the problem, the terms of your purchase agreement, the house inspection report, other documentation and verbal representations made to you. If any of the parties knew or should have know about a defect in the property and failed to disclose the information to you, you may have a claim against them. Because your time to bring an action is limited, you should contact a lawyer to determine the appropriate action to be taken.
Under Minnesota law, any well that is contaminated or dangerous to the public must be sealed. A well that is not contaminated or dangerous to the public which is used on a daily, regular or cyclical basis need not be sealed. If, however, your well is no longer in use, you must either have it sealed by a licensed well contractor or obtain a Maintenance Permit from the Minnesota Department of Health and pay an annual maintenance fee of $100.00 (the fee is subject to change by state law). Because a maintenance permit is not transferrable, a new buyer will have to obtain his or her own permit. Costs for capping a well can vary between $200.00 to $600.00 or more depending on the nature of the well, and you should contact a number of well contractors before making your choice.
You are not bound to sell your home to anyone until you sign a purchase agreement. Each purchase agreement presented to you is only an offer to buy your house on specific terms. You have no obligation to accept any offer. If, however, you have signed a listing agreement with a real estate agent and you refuse to sell your home to a "ready, willing, and able" buyer on the terms that you specified in your listing agreement, you could be breaching that agreement by refusing the sale.
Whether or not you pay a commission to the real estate agent presenting you with an offer depends on the circumstances of your situation. If you have listed your house with a real estate agent for sale, your only fee obligation is to pay a commission to that person upon the sale of your home in the amount specified in your listing agreement. If you are selling your home in a "For Sale By Owner" situation, you will only have to pay a commission to the presenting real estate agent if a commission agreement is made a part of the sale transaction (typically, real estate agents expect this to occur). Despite what anyone may try to tell you, the commission percentage to any real estate agent is always negotiable and a lawyer could help you through this issue.
Yes, but if the first offer has an "acceptance deadline," the offer could expire before you act. Many factors affect simultaneous ("contemporaneous") offers. A lawyer can assist, whether the sale is by an agent listing or is a "For Sale By Owner".
You do not have to sign a purchase agreement immediately. Take the necessary time to talk with your lawyer and become comfortable with your decision. Remember, however, that the other party may withdraw the offer or accept a different one. The purchase agreement might also include an acceptance deadline which requires you to make a decision by a certain time. If that deadline passes, the offer expires. If you do decide to take more time, it is important that you move promptly to resolve any concerns you may have.
You may not discriminate against any person because of race, religion, gender, national origin, familiar status, mental or physical disability, public assistance, sexual orientation, color, or creed. However, on a sale by contract for deed, a seller may require evidence that the buyer is creditworthy and can make the payments. If the buyer's apparent intended usage of the property whether rental, commercial, vehicular, or residential, is a source of legitimate concern to seller, then, prior to signing the purchase agreement, an appropriate restriction must be drafted and agreed upon for inclusion in the contract for deed. You should consult a lawyer about such a provision.
What you were told was wrong. Most real estate agents are trained to fill in the blanks of standard form agreements, but they have not been trained in the law and cannot advise you on the legal significance or the effect of the terms in a purchase agreement. Remember, the sale or purchase of a home is probably the largest transaction in which you will ever be involved and you should protect your interests.
There are many pre-printed purchase agreement forms used in the real estate industry and, although frequently referred to as "standard," their terms can vary widely. The Minnesota State Bar Association has, however, created a purchase agreement designed to be well-balanced in reciting the respective obligations of buyers and sellers and to highlight issues for negotiation. Remember that when using any pre-printed form, the pre-printed language is for convenience only; all of the terms in the documents are negotiable. As with any contract, you should carefully review its terms and make sure that you understand the legal effect of each of those terms before you sign the agreement. A lawyer can help you with all of this and should be consulted before you sign any form of a purchase agreement.
A real estate agent can prepare a purchase agreement for you but, because real estate agents are not licensed to practice law, they cannot advise you on the legal significance of the terms of your agreement. A lawyer's fees will generally be based on the complexity of the transaction, not the purchase price of the home. Some lawyers are paid by the hour, some offer a flat fee for the job, and some offer a flat fee for a certain amount of work and any additional work is billed to you by the hour. Hiring and paying a lawyer to represent you in buying or selling a house (in which you may have a substantial amount of your net worth at risk) is advisable to ensure that your interests are completely protected.
Yes. The seller's lawyer represents only the seller's interests, and what may be in the seller's best interest may not be in yours as a buyer. The seller's lawyer has no ethical or contractual obligation to protect your interests. Remember, you can negotiate all of the terms of a purchase agreement up until the time that both you and the seller have accepted the terms by signing the agreement. Your lawyer can advise you on whether the proposed terms are in your best interest and can suggest appropriate additions or modifications to better protect you.
The first step is to contact a lawyer who can advise you about reasonable and achievable terms in a transaction. The next step is to contact the owner and discuss these terms. Either you or the seller can then prepare a purchase agreement, and your lawyer can help you with this process to ensure that your interests are protected.
Once the purchase agreement and any attachments to the agreement are signed by both the buyer and the seller, these combined documents become a binding, enforceable contract to buy and sell a home. All negotiations as to the terms of the purchase agreement will take place before both parties sign the agreement.
As with any contract, you should have your lawyer review your purchase agreement before you sign it so that any changes or modifications needed to protect your interests are made before you sign the document. Once you sign the agreement, it is generally too late to make any changes. Although it may greatly reduce your bargaining power, one alternative is to include a contingency provision in the purchase agreement that allows your lawyer to review and amend the contract after you sign it; any changes that might be necessary after your lawyer reviews it will then be negotiated. The specific language of this contingency addendum should be obtained from your lawyer to ensure that you do not lock yourself into a deal that you are not prepared for.
Each purchase of a home involves unique circumstances that should be addressed in the purchase agreement. To adequately represent and protect your interests, your lawyer should review with you any information that pertains to the house itself, your personal needs and expectations, your intended use of the home, your choice of financing and the dates you want for a closing and for taking possession of the house. This review should include any disclosure forms on the condition of the home, as well as any other documents that the sellers may have provided to you. The following is just a sample of what your lawyer can do for you:
|a)||make sure that the property described in the purchase agreement is truly the property you intend to purchase;|
|b)||help you determine the type of title that you are willing to accept from the seller;|
|c)||make sure there are adequate protections for you against liens and encumbrances on the property;|
|d)||determine if there are any contingencies to your purchase that need to be included in the purchase agreement;|
|e)||determine if the price and terms of your financing are correct and acceptable;|
|f)||determine if there is any risk of exposure to environmental liability claims;|
|g)||help you determine if the physical condition of the property is acceptable to you;|
|h)||help you determine an acceptable date of closing and date of possession;|
|i)||determine who should pay the many different categories of taxes and special assessments on the property and when; and|
|j)||determine the length of time that your offer should be left open to the seller.|
Whether you can keep the earnest money or not is completely controlled by the terms of the purchase agreement. Your lawyer can review the purchase agreement and any documents related to it and advise you on what your rights are with regard to the earnest money.
Even with contingencies, a purchase agreement is valid and binding on the parties who sign it. A contingency simply means that your closing is dependent on an occurrence that you may, or may not, control. If the specified occurrence does not happen, the purchase agreement terminates and cannot be enforced by either the buyer or the seller. As an example, a buyer may need to obtain a mortgage loan before buying a house. A financing contingency would be included in the purchase agreement so that if the buyer could not obtain an acceptable mortgage loan, the purchase agreement terminates. Other contingencies might require that a buyer sell her current home or obtain an acceptable home inspection before closing the sale and purchase. Before signing a purchase agreement, it is important to evaluate whether or not you need any particular contingency to protect your interests. Your lawyer can suggest and draft these terms based on your specific needs.
The sale of a condominium or townhome involves a few more documents than the standard residential home sale. A seller must provide a buyer with the condominium or townhome association by-laws, articles of incorporation, covenants and other relevant documents for review. By statute, the buyer then has 15 days to cancel the purchase agreement if the documents are not acceptable. In addition, the Association may need to be notified of a new purchaser and, in some instances, the Association may need to approve the sale. Because the condominium and townhome documentation governs the actions and rights of residents in those developments, buying a condominium or townhouse requires, in addition to resolution of the customary purchase issues, a thorough review and analysis of that documentation. A lawyer can assist you with understanding those documents.
A quit claim deed transfers the seller's interest in and ownership of the property from the seller to the buyer. A warranty deed does the same thing, but it includes statutory warranties that title to the property is clear and no liens or encumbrances exist against the property. A warranty deed may, and frequently does, include exceptions to these warranties. Your lawyer can ensure that the appropriate deed form, with appropriate warranties and exceptions, is used in your transaction.
While nothing legally prohibits you from calling a buyer's loan officer, the loan officer may not be able to discuss matters with you because of confidentiality obligations. One way to avoid this confidentiality claim is to have the buyer agree in the purchase agreement that he or she waives any financing confidentiality protections and gives you permission to speak with his or her loan officer. A lawyer can assist you with this type of a provision.
Generally, you should not offer information gratuitously. If you have comparable sales data for the area indicating that your sale price is reasonable, you may certainly provide that to the appraiser. Unless you are experienced in this area, however, what may seem to be comparable to you may not be to the appraiser. Some appraisers may also tell you that any involvement on your part brings into question the independence of their appraisal. A lawyer can assist you in assessing the advisability of talking directly to the appraiser.
The Veterans Administration ("VA") does not allow veterans to pay certain closing costs. An example of this is the mortgage closing fee charged by title companies. As a seller you may have to pay these costs at your closing. A lawyer can assist you in identifying these costs, factoring them into your home sale price and addressing them in your purchase agreement.
Although a title company may prepare these documents on standard forms at your request, you should always ask a lawyer to review them for you. The title company is not authorized to practice law and only a lawyer can adequately protect your interests in this financing situation.
The options available if the house appraises for less than the sales/purchase price depend upon the terms of the purchase agreement. A purchase agreement can provide that the obligations of the buyer are contingent upon the house appraising for the sales/purchase price. In other cases, purchase agreements are made contingent upon the buyer obtaining a mortgage, and the availability of a mortgage will depend on the house appraising at a certain value (not necessarily the purchase price). In either of these cases, the buyer will generally be entitled to terminate the agreement and obtain the return of the earnest money. You can either ask the appraiser to look at additional information in an attempt to convince him or her to amend the appraisal or you can have a different appraiser look at the house. Remember also that, in such a case, a buyer and seller are always free to renegotiate the purchase agreement. If the purchase agreement does not have a contingency regarding financing or appraised value, a low appraisal will not release the buyer from the obligation to purchase. A lawyer can add language to your purchase agreement that will protect you in these circumstances.
Generally, you do not want to rent to your buyers because there are many risks to doing so. If, for example, they do not obtain financing, your sale may fall through. You may then need to cancel the purchase agreement by a statutory procedure and, because the former buyers would be in possession of the property, you might need to wait 60 days before the contract can be canceled instead of the typical 30-day cancellation period. After that time frame, if the people do not leave voluntarily you will need to bring an unlawful detainer action in district court to remove them. Both scenarios are expensive and time consuming and you should talk with a lawyer for further advice and a strong lease agreement if you decide to proceed with a rental arrangement.
A seller remaining in possession of a home after the closing raises several issues that you need to think about and address in your purchase agreement. These issues include determining a fair rental amount for the period of time that the sellers remain in the property, and addressing who pays for any wear and tear on the property after the closing (for example, damaged doors or who pays to fix a furnace that fails after closing but while the sellers are still in possession of the home). Since each situation will be different, you should consult your lawyer to help you prepare purchase agreement terms that will protect both you and your new home.
Title insurance refers to an insurance policy that is purchased from a title insurance company. Title companies will review the status of title to a piece of property and issue a "commitment" for issuing you a policy of title insurance. This commitment will give you the terms on which the title insurance company will issue insurance coverage to you. The commitment will also list exceptions and specific exclusions to their proposed insurance coverage. The exceptions raise issues that you and your attorney should review to determine if they can and should be deleted from the final title insurance policy (such as mechanics' liens or mortgages placed on the property by your seller). As the names suggest, a "lender's policy of title insurance" is issued for and protects a lender and an owner's policy title insurance is issued for and protects property owners.
A title opinion is a memorandum issued by a lawyer after he or she reviews the Abstract of Title (or the Registered Property Abstract if the property is torrens). A title opinion is often obtained by buyers instead of purchasing a title insurance policy. The title opinion will reference any issues or "defects" affecting the condition of title to the property and will set out any objections to title that the lawyer may identify. As with a title insurance policy, a lawyer's title opinion may include standard exceptions or limitations to the scope of the opinion.
It is very important to keep in mind that both a title insurance policy and a lawyer's title opinion relate to past transactions and issues affecting title, not future transactions. If you do not understand any portion of either a title insurance policy or a title opinion, you should always ask for an explanation.
You may be required to purchase a lender's policy of title insurance at your closing, but you are not required by law to purchase an owner's policy of title insurance or to obtain a lawyer's title opinion. A buyer should, however, have at least one or the other to reveal defects, liens and encumbrances that affect the property. Whether or not you buy an owner's title insurance policy, a lawyer is important in the process because she or he can review the title commitment and look for concerns that need to be resolved before or at the closing.
"Abstract" is a shortened reference to an "Abstract of Title". This is simply an historical digest of the documents filed in the county property records that affect the title to a particular piece of real property. An Abstract does not insure that title to a piece of property is clear, but instead notifies anyone examining the Abstract of claims and interests that affect the property. If the property you plan to buy is abstract property, instead of registered or torrens property, you should receive an Abstract from your seller upon final execution of your purchase agreement (if your property is torrens/registered property, there will be no Abstract for the property). The Abstract, usually updated by a title company to reflect all documents affecting the property and recorded through the date of your purchase agreement, should be examined by your attorney or title company to determine if any documents referenced in the Abstract could affect your interest in the property. Unless you are buying on a Contract for Deed, you keep the Abstract after the closing. Because Abstracts can be very costly to replace, it should be kept in a safe place such as a bank deposit box or with the title company in its storage vault.
Yes. The fact that you are buying torrens (registered) property does not mean that title to the property is clear. Torrens property has simply been registered with the county under a separate identification and filing system. As with abstract property, there could be any number of liens against or defects in the condition of title to torrens property.
No. Title insurance policies contain any number of exceptions to coverage. For example, some policies will not cover loss due to boundary line disputes, easement problems, mechanic's liens, or rights of tenants to property. Each policy may contain different exceptions. Often, these exceptions are negotiable, therefore, before accepting an owner's policy of title insurance, you should have a lawyer review the exceptions.
The cost of an Abstract of Title typically ranges anywhere from $500.00 to $1,000. In Minnesota, an Abstract is considered to be the principal means of evidencing title. If you accept a policy of title insurance in lieu of an Abstract, you may be requested to provide an Abstract to your buyer when you sell the property. Ideally, you should have an Abstract of Title provided to you that a lawyer could examine. You and your lawyer can then discuss your options with respect to any title problems and title insurance.
The fact that you bought title insurance does not mean that title to your property was clear when you bought your house. The title company may have excepted some defects from coverage or insured over other defects. The title company's obligation is to pay you for any actual loss that you suffer as a result of any title problems the policy insures you against. Some situations may also require the title company to defend your title for you (at the title company's cost) and protect your interest in the property. You need to note also that: (a) your title policy does not cover title defects that arose after you bought your property such as liens, judgments or documents mistakenly recorded against your property, and (b) the title insurance policy that your lender requires you to purchase for the lender's benefit does not protect or insure your interest in the property at all.
The pricing offered by title insurance companies and the quality of their service varies from company to company. The company you choose can make a difference in your pocketbook, the ease of closing your home purchase, and the quality of service that you receive after the closing . As a consumer, you have the right to select any title insurance company, lender or other service provider in the real estate purchasing process. It may be logical to use the title company recommended by your lender or real estate agent if that company can do the work more efficiently or at less cost than another company, but it is always in your best interest to shop and compare title services.
The owner's policy of title insurance will be mailed to you some time after the closing. The exact time will depend upon when the county office returns closing documents to the title company. You should call the title company if you haven't received your owner's policy of title insurance after four months from the date of closing. You should have your lawyer review the policy when you receive it to verify that its contents reflect the assurances given to you at closing. Upon request at closing, the closer, acting as agent for the title insurance company, will mark up the title insurance commitment so that it reflects all of the conditions, exceptions and terms to which the final policy will be subject.
It is the seller's responsibility to clear title prior to closing. Each lawyer charges differently for services. You should consult a few lawyers prior to selecting one to help you with your sale or purchase.
You need to look at title issues for your own protection and should not rely on the title review performed by your mortgage company. Remember, mortgage companies seek to make money and do not necessarily protect your interests in the process. Mortgage companies will generally order and obtain a lender's policy of title insurance (at your cost), but this coverage only protects the lender against defects in title. The property may have title issues that could be very important to you, but of no concern to your lender.
No. The parties to a purchase agreement can always negotiate whether a survey will be provided and how the costs of any survey will be paid. Home buyers may want information or assurances relating to several issues, including boundary lines of, and easements on, a piece of property. If so, a buyer can make a purchase agreement contingent upon the satisfactory results of a survey and the parties can determine the details of obtaining that survey in the purchase agreement.
Generally, a new lender will require an easement which includes maintenance obligations pertaining to the driveway. It should be drafted to be binding on subsequent purchasers of both parcels of land.
Federal law gives buyers the right to inspect the closing statement one business day before the closing. The closing statement (called a "HUD-1") itemizes all the costs that you will be charged at closing. Be sure to let the closer know well in advance that you want to inspect the HUD-1 the day before closing.
Buyers and sellers can negotiate as to who will pay which costs. Customarily a seller's costs may include:
|1.||Updating Evidence of Title - between $95.00 and $400.00, but possibly more;|
|2.||State Deed Tax - $1.65 per each $500.00 of the purchase price ($1.70 in Hennepin County), with a minimum tax of $1.65 (or $1.70 in Hennepin County);|
|3.||Recording Fees - these fees range from $19.50 to $34.50 per document;|
|4.||Real Estate Commissions - commissions vary depending upon what you negotiated with your listing agent but they are generally between 2% and 7% of the purchase price;|
|5.||Assessment Searches - approximately $25.00;|
|6.||Unpaid Real Estate Taxes - customarily these are prorated as of the date of closing; the seller pays all taxes before the date of closing and the buyer pays all taxes after that date;|
|7.||Seller-Paid Points - to be paid by seller if obligated to do so by the purchase agreement;|
|8.||Payoff of Existing Liens - the seller will usually be responsible for paying the balance of existing liens at closing;|
|9.||Clearing Title - if title defects exist the seller may be obligated to clear these at the seller's expense and these costs can vary widely;|
|10.||Closing Fee - a closer will charge a fee for his or her services which can range from $175.00 to $250.00 or more;|
|11.||Attorneys' Fees - these fees will vary based on the amount of services provided; and|
|12.||Miscellaneous Costs - any other costs that the seller agreed to pay in the purchase agreement.|
A buyer's closing costs typically include the cost of financing the purchase. If a buyer is giving a lender a mortgage on the home, the lender will be required to provide the buyer with a "Good Faith Estimate" of costs so that the buyer can anticipate the costs involved with the financing. In addition to these financing charges, a buyer will usually have to pay title insurance premiums, title examination costs, recording fees, mortgage registration tax, closing fees, attorneys' fees and any other costs that the buyer has agreed to pay in the purchase agreement.
It is possible to close your transaction without an owners duplicate but you must first apply for a replacement. A lost owner's duplicate certificate of title is replaced by the Registrar of Titles of the county where the property is located. All of the property owners must sign a statement saying that the original certificate was lost or destroyed. You must then pay a fee for the replacement certificate and the Registrar will give you a receipt for that payment. This enables documents to be filed seven days later by presenting the Registrar with the receipt, instead of the original certificate. Although some title companies will not close a transaction until the seven days have expired, most will close as soon as you have the Registrar's receipt.
It is always a good idea to obtain recommendations of several home inspectors from family, friends and colleagues, and to then compare the services offered by each one. As with any professional service, the quality and the extent of home inspections vary and the person or company you hire can make a difference in the information and peace of mind that you receive.
Whether or not you can make a claim and against whom, will depend upon the nature of the problem, the terms in your purchase agreement documents, and the terms of your agreement with your home inspector. The terms of your documentation should be closely reviewed to determine what courses of action you can take and your lawyer can advise you on those options.
No. The fact that a buyer chooses to buy a home after a home inspection does not mean that the buyer is purchasing the house "as is". If you intend to sell your house "as is", you need to specifically state this in your purchase agreement. You should have your lawyer prepare or review the purchase agreement to ensure that you are selling (or buying) your home in the condition that you intended. Even if you buy "as-is", the seller will be responsible for the seller's misrepresentations and any items the seller deviously conceals about the property.
Your course of action will depend on the nature and extent of the condition that is unacceptable to the buyer. There are a range of options starting from negotiating between you and the buyer for correcting or restoring the condition, to canceling the purchase agreement, either by mutual agreement or statutory cancellation. You may also be able to initiate litigation for specific performance (forcing the buyer to purchase the property and "perform" under the purchase agreement) or for damages. Because there can be serious consequences in any avenue that you choose, you need to be properly advised by a lawyer as soon as possible.
Unless the purchase agreement requires it, state law does not require a seller to provide water quality tests on any well used for drinking water. However, some lenders, parties to the purchase agreement, or municipalities may require testing prior to sale. You should always check this issue with your particular municipality before entering into a purchase agreement.
A radon test is a measurement of the level of radon gas emitted from the ground into your home. You do not have to have this test performed before you can sell your house.
Who pays for pre-closing repairs depends again on the terms of the purchase agreement. Whether you can cancel the purchase agreement for this reason also depends on its terms. Often, purchase agreements will set a "cap" on the amount of repairs that either party is required to perform and, if the costs of the repairs exceed that amount, the parties can terminate the purchase agreement or can agree in writing as to who will pay for the additional costs of the repairs. A well drafted purchase agreement will address these issues and provide solutions for them.
This question raises many issues. The Minnesota Association of Realtors, a private trade organization, promotes the use of an arbitration system it created to decide disputes relating to the condition of property. The arbitration system offered by the Realtors is voluntary and not necessary as part of an enforceable purchase agreement. In deciding whether to sign the arbitration addendum, whether you are a buyer or seller, you should consider what factors are important to you.
A first consideration is whether you want to agree on a dispute mechanism before you know what the dispute is about and before you know the amount of money that is in controversy. You and the other parties may agree to arbitration (or another method of dispute resolution) at any time. Alternative methods of dispute resolution have advantages and disadvantages. If you do not agree upon an alternative dispute resolution method with interested parties, disputes will be decided according to legal rules by the Minnesota court system.
A general comparison of the Minnesota court system with the Realtor's arbitration system follows.
|MINNESOTA COURT SYSTEM||REALTOR'S ARBITRATION SYSTEM|
|WHEN MUST A CLAIM BE MADE?||GENERALLY UP TO 72 MONTHS||WITHIN 18 MONTHS|
|WHAT IS THE FILING FEE?||$20-$135||$250-$1150|
|WHO DECIDES THE DISPUTE?||A JUDGE OR ATTORNEY REFEREE LICENSED BY THE SUPREME COURT WHO IS SUBJECT TO THE CODE OF JUDICIAL CONDUCT.||AN ARBITRATOR WHO IS USUALLY INVOLVED IN REAL ESTATE OR CONSTRUCTION, USUALLY NOT AN ATTORNEY|
|WHO MAKES THE RULES?||THE COURTS AND THE LEGISLATURE||THE MINNESOTA ASSOCIATION OF REALTORS AND THE AMERICAN ARBITRATION ASSOCIATION|
|WHERE IS THE HEARING HELD?||AT THE COURTHOUSE||AT THE PROPERTY|
|WHEN IS THE HEARING HELD?||WITHIN A FEW MONTHS OF FILING THE CLAIM IN CONCILIATION COURT; USUALLY WITHIN 18 MONTHS IN DISTRICT COURT||WITHIN A FEW MONTHS OF FILING THE CLAIM|
|HOW LONG DOES THE HEARING TAKE?||USUALLY ONE HOUR OR LESS IN CONCILIATION COURT AND ONE DAY OR LESS IN DISTRICT COURT||USUALLY FOUR HOURS OR LESS|
|HOW IS THE DISPUTE DECIDED?||ACCORDING TO RULES OF LAW||ACCORDING TO THE DISCRETION OF THE ARBITRATOR WHO IS NOT REQUIRED TO FOLLOW THE LAW|
|IS DISCOVERY ALLOWED?||NO IN CONCILIATION COURT; YES IN DISTRICT COURT||NO|
|IS A REASON FOR THE DECISION GIVEN?||JUDGES USUALLY EXPLAIN THE BASIS FOR THEIR DECISIONS||ARBITRATORS USUALLY DO NOT EXPLAIN THE BASIS FOR THEIR DECISIONS|
|IS ANY APPEAL ALLOWED?||YES||NO|
|IS A JURY POSSIBLE?||YES||NO|
|MAY PUNITIVE DAMAGES BE AWARDED?||YES||YES|
|ARE ATTORNEYS REQUIRED?||CONCILIATION COURT MAY LIMIT ATTORNEY PARTICIPATION IN COURT, BUT ATTORNEY CONSULTATION IS RECOMMENDED; GENERALLY NECESSARY IN DISTRICT COURT||NOT REQUIRED BUT GENERALLY DESIRABLE|
|MAY ATTORNEY'S FEES BE AWARDED TO THE PREVAILING PARTY?||YES, IF A CONTRACT OR A STATUTE ALLOWS||GENERALLY NOT AWARDED EVEN IF REQUIRED BY STATUTE|
|IS THE DECISION PUBLIC OR PRIVATE?||PUBLIC||PRIVATE|
|HOW IS THE DECISION ENFORCED?||BY THE COURT SYSTEM||BY THE COURT SYSTEM|
A Truth in Housing or Code Compliance Inspection is an inspection of the property by a licensed inspector who takes into consideration the physical condition of the property and whether it complies with local building codes. The cost of the inspection varies. If you do not obtain one, not only may you be in violation of the ordinance, but it can bring into question the enforceability of your purchase agreement. You should consult a lawyer to determine what is required. Selling a house in an "as is" condition will not allow you to avoid this inspection. In some cities, the property must be brought into compliance with city building codes before closing.
You may be able to avoid disclosing some defects by selling your house in its "as-is", "with all faults" condition, without representations and warranties. This would most likely be reflected in the purchase price you can command for the property. There may, however, be instances where there is an absolute duty to disclose a defect to avoid committing fraud and you should discuss with a lawyer those certain special circumstances which may dictate a duty to disclose. Misrepresentations never excuse the existence of a defect.
No. You have to pay a commission to the buyer's agent only if you agree to do so. The amount of the commission is whatever you and the agent agree upon. Before agreeing to pay a this fee, you should consult with a lawyer about other necessary terms.
Generally, the seller needs to provide the buyer with a deed, a standard Affidavit of Seller, a bill of sale for the transfer of personal property, a certificate of real estate value (often referred to as a "CRV") and a well certificate, if applicable. A title company can prepare those documents for you, for a fee, but it is often less expensive to have your lawyer prepare these documents on your behalf instead of paying the title company to prepare them and then hiring your lawyer to review the title company's work. Remember again that title companies cannot provide legal advice and may not draft documents that fully protect your rights.
You can homestead the property if you close on the home and move in by December 1 of that year and file for homestead classification by December 15 of the year of the closing. Mid-year partial homestead classification has been abolished. However, partial homestead classification still exists and may be used if one of the owners is a non-relative and does not live in the home.
The real estate tax office of the city where the home is located can provide you with searches for certified, levied, pending and deferred special assessments. The real estate office of the county where the property is located can provide you with searches for all applicable real estate taxes.
Before buying the home, you and your friend should enter into a co-ownership agreement which addresses division of expenses, buy-out provisions, sharing of work, death of an owner, and any number of other issues which could arise as problems as time goes by. This is a complex agreement and you should consult your lawyer.
It is not legally necessary for "co-borrowers" (your parents) to go into title in order to sign the promissory note for your loan. However, some mortgage companies may require co-borrowers to take joint title to the property and sign the mortgage as a matter of policy and procedure. If your parents are required to go into title with you, your parents can quit claim their interest to you after the closing. Generally, lenders will not object to this. Even though your parents are on title with you, you can get the full homestead tax benefit. A lawyer can provide you with guidance through this process to make sure your rights are protected.