Does the sale/purchase become final when we signed the purchase and sale agreement?
Not yet. First, the terms of the purchase and sale agreement have to be negotiated and agreed to by both the seller and the buyer. The offer to purchase and/or the purchase and sale agreement define those obligations and, in great measure, determine the rights and obligations of the parties up to the date of the closing and, in many cases, beyond that date. As an example, the title search is typically done by the buyer (or his lender or lender's attorney when there is a loan) together with a home inspection and survey of the property. The title to the property determines whether or not the seller has the ability to convey a good, clear, and marketable title. The home inspection determines the condition of the property, and the survey of the property provides information as to the boundaries of the property and whether or not the building or other structures encroach on another person's property or if another person's property encroaches on the property being purchased. The issue really comes down to whether or not the buyer, or the seller, who are typically untrained professionals in the real estate business, should be represented by counsel to protect their interests. The saying "He who represents himself has a fool for a client" is especially appropriate in real estate transactions. The sale of a property is straight forward until you have a problem. If the documents fail to deal with your problem then your ability to protect your interests, whether you are the seller or the buyer can be seriously compromised. The bottom line is that the deal isn't a deal until the deed is recorded and, even then, there can be lasting reminders of a bad deal in the form of a law suit. Once the purchase and sale agreement is executed, except very specific circumstances, it is very difficult to avoid your promise to sell/buy without potentially significant consequences.
Why should I spend the money for a home inspection when my mortgage company is going to inspect the property?
According to one area broker/owner of a realty office, the chief confusion for consumers these days is that many believe an appraisal and a home inspection are the same thing. However, appraisals are used to determine the market value of the house you are going to buy which is the figure on which the mortgage lender bases its decision about the money it can safely lend you. When you obtain a home inspection you are evaluating your investment. Home inspectors, acting on behalf of who retained them, search for possible physical defects with the structure, roof, basement, mechanical equipment such as heating, air conditioning, electrical systems, sewage, plumbing, exterior drainage, and check for termite and other wood destroying insect infestation and/or damage.
The offer to purchase or the purchase and sale agreement controls the buyer's right to make these inspections, the time within which they must occur, when and how the findings must be exchanged, and the sellers obligations to correct discovered defects. The offer to purchase and the purchase and sale agreement typically allows buyers to terminate the agreement unless the seller makes the required repairs. It also usually permits sellers to cancel the contract if an inspection for infestation and/or damage by termites or other wood-destroying insects reveals a treatment or repair problem exceeding a certain amount of money (or the buyer can accept the property with a credit for the previously agreed amount).
Thus, not only are home inspections much different than the appraisal a mortgage company obtains, but they must be handled with particular care in light of the effect they may have on the anticipated sale of the property.
What happens if we can't get a mortgage after we've signed the purchase agreement and the inspections are completed?
The first step to homeownership should be to get pre-approved (not just pre-qualified) in writing for a mortgage. As a buyer, it defines your price range and could save you needless visits to homes you cannot afford. From the seller's perspective, it takes some of the worry away and makes the potential buyer more attractive thereby increasing the chances of a successful and amicable negotiation.
If a mortgage commitment is not delivered by a specified date or any extended date permitted by the seller the contract may be but not necessarily is deemed null and void. The agreement has to be very specific on this issue. Generally there is an obligation on the part of the buyer to notify the seller and/or broker that they cannot get financing. That is generally done in writing with proof of delivery in the form of certified mail or even fax transmission. In that event, the buyers deposit monies are usually returned unless the failure to obtain the mortgage was the result of something the buyer did or did not do. It must be noted however, that mortgage commitments usually contain contingencies and are not guarantees that the funds will be made available at the time of closing. For example, if you unexpectedly became unemployed the mortgage company would not likely lend you the previously pledged cash and, unless this event was specifically addressed in the agreement, you risk losing your deposit monies.
Purchasing a "money pit" and intent on doing extensive remodeling: subsequent issues?
Massachusetts has very little in the way of protections against parties who buy "fixer-uppers". We have a law that requires that there be smoke detectors installed and that a smoke detector be obtained. We also have a law that requires that there be a working septic system under our Title V law. If you buy a property "as is" without any warranties or representations whatsoever then you better be prepared for the onslaught of problems that can exist with any type of "fixer upper". Be prepared to deal with local building, health, zoning, and various other municipal departments that will undoubtedly take a great interest in your purchase. It is generally recommended that clients have their attorney review the "building jacket" in the city or town to determine if there are any outstanding health and/or building code posted violations.
What happens at the closing?
Massachusetts recognizes that lawyers and not closing companies or title companies are qualified to do real estate closings. Thus, in the vast majority of cases a lender is represented by an attorney. Generally it is the duty of the attorney to protect the interests of the lender and not the borrower and certainly not the seller. In many instances the lender's attorney also represents the buyer as both the lender and the buyer have similar, yet different issues and objectives. The lender wants a good clear first mortgage on the property and the buyer wants a good, clear title to the property. It is for that reason that lawyers can and do represent both the buyer and the lender. It is a conflict of interest however it is a conflict of interest that both the buyer and lender can waive so long as the attorney has properly explained the conflict and so long as the attorney can see no existing conflict. However once a conflict develops the attorney must step aside. It is taboo for the attorney to represent the seller in that situation. Sellers are typically represented by their own counsel or not at all. At the closing the lender's attorney has already conducted a title examination, obtained a survey, and a municipal lien certificate from the town showing any outstanding taxes owed. The lender's attorney prepares the HUD settlement statement showing how much each of the parties have to bring to closing (as in the case of the buyer) and how much they will get (as in the case of the seller). The important documents are the note, mortgage, deed, truth in lending disclosure and HUD settlement statement. The note evidences the amount of the debt and tern term for repayment, the mortgage secures the real estate to the note in case you don't pay. This document is recorded in the county registry of deeds and is of public record, evidencing the outstanding debt to the lender. The deed is the actual document which reflects the transfer of title. This is also recorded in the county registry. The HUD settlement statement tells you how much you're going to pay in association with the loan. These are usually called closing costs. Once all of these documents are signed, the attorney runs down the title from the date of his examination to the date, hour, and minute of the recording and then puts the documents to record, thereby officially transferring title to the new homeowner.
What is Title Insurance?
There are two types of title insurance policies which can issue: Owners and Lenders.
- A Lender's Policy will issue to protect the lender's interest in the amount of the loan. It will issue to ensure that the lender's interests are protected by confirming that there is an enforceable mortgage lien and that it is properly filed with the respective registry of deeds to secured their interest in the proper position of collection priority. In other words, that they are the first lien holders on the property or more simply put, that there are either no other liens or attachments ahead of them. If there are prior attachments, they must be fully disclosed and accepted by the lender in order for good and clear title to issue. This policy must be issued on behalf of the lender each and every time a loan or mortgage is taken out, whether it be when a property is purchased or any subsequent refinance of the property.
- An Owner's Policy is optional but when issued it will be issued directly to the purchaser, insuring that the owner has a clear title to the property being purchased as against any parties claiming a right to that property. This can come from any person who may have held a prior ownership interest in the property which interest was not conveyed to subsequent owners in the chain of title. Although it is not mandatory, it is strongly recommended.
Some of the instances which are covered by title insurance include, but are not limited to, the following:
- Issues found during a title search;
- Undisclosed but recorded liens;
- Hidden defects in the title; i.e.:
- forged documents
- fraud
- missing heirs
- mis-indexed documents
- incapacity of the grantors
- errors in recording
- Restricted covenant violations;
- Unpaid taxes;
- Undisclosed but recorded easements or covenants on the property;
- Undisclosed but recorded judgments or liens filed against prior owners;
- Conveyances by a minor
- Unsatisfied claims not shown of record or not immediately apparent.
A useful site which explains title insurance in depth to homebuyers and people looking to refinance is provided by First American Title Insurance. Their web site is located at:
