Your Rights when Buying or Selling a Home

BUYING AND SELLING A HOME

The buying and selling of a home represents the singe most important investment of a lifetime for most people. It should, therefore, be approached with care.

The Listing Contract.
The first document a prospective seller may encounter is the real estate agent's listing contract, which is required, by law, to be signed by the owner before the agent may show the prospective customers the property. A seller may sell his or her own property, but under an exclusive listing agreement, may still have to pay the real estate agent, and the agent has the right to place a lien against the property for payment. To avoid such problems, the question of what type of listing, and what terms the listing should include (including time limitations) are matters a seller may wish to review with an attorney at the outset.

Should an Attorney be Contacted before signing a Real Estate Contract ?
    An attorney should be contacted before signing any contract. A seller may wish to consult with his or her attorney on planning and zoning considerations, subdivisions requirements and restrictions, and other convenants or agreements which may affect the property before executing a listing contract.  Many real estate agents and brokers prepare an agreement which they ask prospective buyers to sign when giving a deposit or making an offer on a home. When the seller signs that agreement, it will be binding on both parties unless there is a defect in the agreement. Real estate agents and brokers have not had the legal training to recognize all the problems which may result from an imperfectly drawn agreement.
    In addition, sellers are required to make, and buyers are entitled to receive certain representations about the property.  Each party may wish to consult an attorney to fully understand his or her rights with regard to those disclosures.
    The buyer's attorney, if contacted the buyer signs the contracted, will be sure that, to the extent applicable, the purchase is contingent upon the buyer being able to obtain mortgage financing, that all personal property included in the sale is listed in the contract, and that the buyer is not agreeing to assume encumbrances or liens which should be the obligation of the seller or which interfere with the buyer's use and enjoyment of the property. The buyer may want engineering studies, termite inspections, or water quality tests, all of which may be listed in the contract as prerequisites to a transfer of title.
    The seller's attorney will want to be sure that the buyer has a limited time in which to acquire financing and to satisfy any other contingencies in the agreement to prevent the property from being held off the market for an extended period of time during which the buyer has the ability to cancel the agreement.
    If a contract has already been signed, it should be immediately reviewed by an attorney who will explain the legal significance of the various terms of the contract as well as determine whether it contains any errors or ambiguities which the parties may want to correct.

What Else Does the Attorney do ?
    The lending institution providing mortgage financing for the purchase of the home may require its attorney to prepare the note, mortgage deed and other loan documentation. The buyer may request representation by the bank's attorney or obtain the service of a private attorney.
    The buyer's attorney will discuss with the buyer the necessity of having a title search done and what type of survey may be required. Depending upon the custom in the area of the state where the property is located, either the buyer's attorney or the seller attorney will examine the title to the property, although the cost of the title search is usually borne by the buyer.
    The attorneys for the seller and buyer will prepare the closing documents, review adjustments for taxes, water, rent and oil, as applicable, and will notify their respective clients prior to the closing of the financial details of the transaction.

What is a Closing ?
    A real estate closing is the occasion when title to real property is transferred from a seller to a buyer, and when a mortgage deed and other loan documentation are signed by the buyer in consideration of the loan of the money from the bank or other lending institution.
    Customarily, the closing will be attended by the seller, the buyer, the attorney for both the bank, he real estate agent and sometimes a representative of the bank or at one of the attorney's offices.
    With federal regulations and the wide variety of mortgage loans available today there are often many other papers to be signed at the closing.  Each attorney's role is to be sure the client is fully informed of the legal ramifications of each document and to attempt to protect the client's needs and legal rights.  The client should have a full understanding of what is being signed and should feel free to ask the attorney to fully explain any aspect of the closing which is unclear.
    At the closing, the buyer and seller will receive a closing statement which sets forth all the various closing costs and any adjustments between buyer and seller as well as the bank charges being paid by the buyer.  The attorney will see that the closing statement and the other closing documents are executed by the parties, that the parties exchange proper documents, make required payments, and conclude the formal aspects of the transaction.
    Following the closing, the attorney will see to the recording of appropriate documents on the land records of the town in which the property is located and to the disbursement of amounts paid at the closing

Is an Attorney needed when Purchasing a New Home or a Condominium Unit ?
It is a common misconception that the purchase of a condominium or a newly constructed home is a less complicated transaction then the purchase of other residential property. In fact, there are special considerations related to each that require extra attention by the attorney's involved. For example, in the case of a new home, the buyers attorney may recommend an escrow fund be established to protect the buyer if the builder has not completed construction of the home by the time of the closing. In the case of a condominium, many aspects of the purchase and sale are specifically addressed by state law which can best be explained and reviewed by an attorney.

How Much will it Cost to be Represented by an Attorney ?
The fee of the attorney will vary according to many factors, including the time required, the nature of the work, the responsibility involved, the attorney's experience and availability, and the results obtained. An attorney is required not to charge more than a reasonable fee by the Code of Professional Responsibility applicable to the legal profession. A client should discuss the fee arrangement with the lawyer at the initial interview and be satisfied how the fee will be determined. Once the client has retained the attorney, the client is entitled a written fee letter, setting forth the fee to be charged and the services it will cover.

How do I Find an Attorney to Represent Me ?
If you do not have a family attorney, you may wish to call your local Bar Association's Lawyer Referral Service and have them refer you to an attorney or ask friends or relative for a recommendation. Also, attorney's are listed in the classified section of telephone directories. In any event, it is important, whether you are the buyer or the seller, to be represented by your own counsel. Remember, any other lawyer involved in the transaction is representing someone else first. Your interests can only be protected if you have your own counsel.

Zoning Board of Appeals update added 11/24/99

Most people, at some point in their lives, will make a visit to their town's Zoning Board of Appeals. The ZBA's job is to decide cases in which a citizen requests that the town's zoning rules not be applied to their particular situation. When relief is granted, the applicant is said to have received a variance.

Zoning regulations have been in place in most town's since the 1950s. Zoning regulations are laws which regulate development in order to promote the health, safety and welfare of the town. For example, most towns have zones which require the lot area to be a certain size in order to serve as a building lot.

If you owned a lot that was too small for the zone in which it is located, you could request a variance from the local ZBA. Usually, an applicant would seek to convince the ZBA that their proposal would not adversely affect their neighbors or town and that the proposed variance is not greatly different from other situations in the area around the property. Additionally, the applicant must prove hardship. This has proven to be an elusive concept and the courts have spent much time trying to specifically define what is meant by hardship. It is often defined by what it is not. For instance, it cannot be self-created and the hardship cannot be financial. A hardship is usually defined as something which arises from the application of the zoning regulations to circumstances beyond the control of the applicant.

If you find this definition unsatisfying, then you are in the majority. Land use attorneys and ZBAs are repeatedly frustrated by the concept and with good reason. Before a variance can be granted, a hardship must be proven and trying to prove what you do not clearly understand is like trying to hit a moving target.

Those who have land which is grandfathered can avoid the problem altogether. This is a situation where the configuration of the land predates zoning. For instance, if a lot was laid out prior to the enactment of zoning in the town and the lot area is smaller than that currently required by zoning, the lot is called non-conforming. If certain other requirements are met, the lot could be built on without a variance. Those with non-conforming lots can avoid the variance application altogether and will not have to deal with the hardship problem.

BUYING A HOUSE AT A FORECLOSURE SALE
By Attorney Barry L. Thompson of Thompson and Vollono, LLC update added 11/24/99

Despite the recent robust economy there are still a steady number of homes that are being sold at public auction foreclosure sales. The weekend issues of local papers contain a dozen properties that are about to be sold at high noon on any given Saturday. The properties often go for what appear to be very inexpensive prices. Is such a purchase a wise move for you?

The purchase of foreclosed property at a public auction sale carries many risks with it. The buyer does not have many of the safeguards that are automatically or often involved in a typical arms length transaction. The property is sold in "as is" condition with none of the statutory warrantees that are otherwise mandated by State law. You are required to have a substantial deposit (10% of the court appraisal value of the property) in order to participate in the bidding process and you must purchase the property within thirty days of the Court's approval, if they approve it!

There is no "mortgage contingency" clause to protect you from losing your deposit if your lender chooses not to provide you with a loan to buy the property. You do not receive title via a Warrantee Deed so you only get whatever title the foreclosing party has subject to any prior liens or encumbrances that predate his interest. You take title subject to any outstanding real estate taxes, water and sewer liens or similar unpaid debts that attach to the property.

Participation in an auction sale can be exciting and may even cause you to pay more than you otherwise might have. The auction is conducted by an attorney appointed by the Court know as the Committee of Sale. Bidders register and are usually afforded a couple of hours time before the sale to inspect the property but unless you have a background in construction you may not have the expertise to discover hidden defects. The bidding follows the same pattern as any auction with the bidders increasing their bids until only one bidder is left….and they are the winner.

The upside of a foreclosure sale purchase is usually getting the property for a "good" price. In order for you to determine what a good price is though you need to do your homework and learn as much about the property as you can. Check the land records, the assessor's records, call the Committee, call local real estate agents to inquire as to typical prices for similar properties in the area and drive through the neighborhood. Attend a foreclosure sale just to get a "feel" for it. You can not know too much about the property before you bid on it! Above all make sure that you have the funds to buy the property if you are the successful bidder.

An experienced attorney can be a valuable source of information and assistance if you choose to attempt to purchase a property at a public auction foreclosure sale.

MORTGAGE CONTINGENCY CLAUSES update added 11/24/99

Virtually every residential real estate contract contains a "mortgage contingency" paragraph unless the buyer has all of the cash to pay for the property. Since it is rare for someone these days to be able to pay cash for a home the "mortgage contingency clause" is a factor in most real estate purchase contracts. This clause allows for a buyer to escape the contract (and have the deposit returned) IF he is unable to obtain a mortgage loan on the specified terms by the specified date. The buyer is required to notify the seller by that date whether or not he has obtained the required commitment to extend the loan from the lender. If he fails to so notify the seller that the loan commitment is not to be forthcoming , the contingency is deemed to be satisfied and the buyer is now required to go through with the closing or risk losing his deposit.

This clause should be more accurately described as a "mortgage commitment contingency clause" because the contingency is satisfied when a lender issues a letter or "commitment" to lend the money and not when the loan finally occurs. This can cause many problems for a transaction if the lender agrees to provide a loan but for some reason does not in fact follow through with the actual provision of the loan. The buyer may not be able to purchase despite the possession of a commitment to loan for a variety of reasons: the property fails to appraise for a high enough value, the buyer loses his job, or for some other adverse change in the buyer's financial circumstances. Since the commitment to loan relies on no adverse change in the buyer's financial circumstances, such an unforeseen change may cause the lender to revoke the promise to loan AFTER the mortgage commitment date.

This problem of the issuance "commitment" but a failure to actually loan has become more common as the competition among the lenders increases. Many lenders issue "pre-approval letters" which are often enough to qualify under the terms of a standard "mortgage contingency clause". This type of commitment is only based upon an approval of the buyer's ability to pay a loan and is no way based upon the value of the property to be purchased. Obviously if a buyer has yet to select the property to buy; a lender cannot approve the property. In reality the "pre-approval" letter still has a contingency in that the lender's evaluation or appraisal of the value of the property to be purchased must still equal of exceed the agreed purchase price.

The end result of this situation is that buyers and sellers may rely on a lender's promise to extend a mortgage loan only at their peril.

PRIVATE MORTGAGE INSURANCE (PMI):
Why You Do Not Want It on Your Home update added 11/24/99
By Barry L. Thompson of Thompson and Vollono, LLC

Private Mortgage Insurance (commonly referred to as "PMI") is virtually always required by a lender when a buyer is putting less than 20% of the purchase price in cash into a home purchase. Quasi-governmental corporations to insure that a local lender is made whole on its loan if the house is foreclosed upon provide PMI. PMI allows many individuals who would not otherwise qualify to buy a house because of too small a cash down payment to buy a house.

PMI is not inexpensive. There is often an "up front" fee of over $1,000.00 on a typical purchase of a $125,000.00 house. In addition there is a monthly fee that is due along with the mortgage payment of about $55.00 for as long as you have to pay your mortgage…..that is until the Homeowner's Protection Act of 1998 was passed.

Prior to the modification of this law a lender was under no obligation to inform a homeowner that he was no longer required to continue to pay the monthly PMI premium payment. A homeowner qualifies to end his PMI insurance premium payment when the equity value of his home exceeds 20% of its fair market value. This equity growth happens in either one of two ways or a combination of both ways. Either the value of the home increases so that the amount of the mortgage is less than 80% of the fair market value or the homeowner pays the mortgage balance down so that the mortgage is less than 80% of the fair market value of the home. This can often take several years, especially if a local economy is not prospering.

Prior to the modified law lenders were not required to keep track of this 20% equity figure nor were they required to notify homeowners if they met the requirement to end the payment of the PMI premium. This has now changed. Lenders will be required to notify homeowners when their equity reaches 78% of the original purchase price of the house and the PMI premium payment requirement will terminate.

This sounds like good news but it may take a long time to affect the typical recent homebuyers. For example if you purchased a home for $125,000.00 with a cash down payment of $5,000.00 it would take about 11 years to pay the mortgage balance down to the a $100,000.00 balance to qualify for the termination of the PMI payments.

Lenders are only required to track the amount of the your mortgage balance as it relates to the original purchase price of your home. They are not required to keep track of the fair market value of your home if it increases in value to create a 20% equity position. If your same $125,000.00 home increases in value over a 5 year period to be worth $136,800.00 then you would also qualify for a termination of PMI premium payments. If you think that your home value has increased so that your loan is less than 80% of the current value of your home the only way you can terminate the PMI payments is to prove that value to your lender.

In order to prove that increased value to your lender you will be required to furnish them with a certified appraisal of your home. This appraisal may cost you between $250.00 and $500.00. If you are confident that the value of your home has increased, the cost of the appraisal will be paid back to you after only 6 months of not paying your PMI insurance premium so in the long run you will be saving money.

This pamphlet, prepared by the Connecticut Bar Association, is based upon Connecticut law in effect at the time of its publication and is intended for general information purposes only. It is issued as a public service and is not a substitute for obtaining legal advice from a Connecticut Attorney.

Your Family Lawyer / Your Rights as a Consumer /
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Your Rights when Arrested /
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