For most people, a home purchase is the biggest single investment of their lives. It is, therefore, extremely important for a prospective buyer to use great caution in selecting a home that will not only provide comfort, but will cause as little worry as possible, both while it is lived in and when it is time to sell.
A house may seem to be ideal in appearance and cost, but it may contain hidden defects that detract from its value. This may be true not only of the house’s appearance and construction, but also of the title to the land on which it is located. For example, a right-of-way over the land may permit someone to drive across the property, zoning regulations that permit the construction of a factory or commercial building on an adjacent lot, or private restrictions affecting the use or ownership of the property or imposing monetary assessments. It is possible that a title problem may prevent a later sale of the property or be very expensive to remove. Such examples of the difficulties you may encounter show the importance of checking every detail before you buy a home.
A purchase agreement is a document that is just as important as the deed itself. It should contain an accurate description of the property and all of the terms of the sale, including the price, the terms of payment, the type of deed to be given, the date of possession, provisions for the furnishing of title evidence, proration of real estate taxes and casualty losses, and matters on which the buyer may want to make the purchase contingent, such as financing, inspections, the sale of an existing residence, etc. In many cases, provisions for items of personal property or fixtures may be needed.
To be enforceable, a purchase agreement must be in writing and must be signed by both the seller and buyer and, if the seller is married, by the seller’s spouse. The reason for this is that the seller’s spouse has an interest in the property (known as dower rights) that cannot be taken away without consent. Therefore, make sure that the agreement you sign is properly binding on both the seller and the seller’s spouse.
Under Ohio’s residential disclosure laws, the seller of a home, except in limited circumstances, must disclose to prospective buyers certain information concerning the condition of the home. The information must be disclosed on a form prescribed by Ohio’s Department of Commerce. This form is known as the Residential Property Disclosure Form. The form must be signed by the seller, and the buyer must acknowledge receipt of the form. The seller’s disclosure contained in the form is limited to conditions known to the seller and is not a substitute for a professional inspection of the home.
The buyer should require the seller to provide the form before the buyer enters into a purchase agreement. However, the form may be given after the agreement is signed by the buyer. If the form is provided after the buyer has entered into the contract or if the form is not provided to the buyer, the buyer, without incurring any liability to the seller, has the right to rescind the agreement. This rescission right must, however, be exercised before closing and within certain limited time periods. The residential disclosure laws establish other rights, obligations and limitations for both the seller and buyer. To fully understand these rights, obligations and limitations, you should consult an attorney.
Home purchase financing options vary depending on your income, savings, credit record and life situation. Conventional mortgages amortized over 30 years frequently offer an attractive mix of being low risk and having low interest rates and lender fees. The federal government now regulates interest rates, fees and costs, and borrower eligibility for conventional mortgage loans under recently enacted “qualified mortgage” rules.
If you don’t qualify for a conventional mortgage due to past credit challenges, including bankruptcy or foreclosure, you may qualify for a Federal Housing Administration (FHA) loan. An FHA loan is generally offered at regular market interest rates, but allows you to buy a home with a down payment of only about 3.5 percent. An FHA-regulated appraisal and inspection are required, which is typically more in-depth than conventional mortgage appraisals and inspections. FHA mortgages include a required FHA mortgage insurance premium, which is usually included in the original loan. FHA mortgage insurance premiums usually cost less than private mortgage insurance.
First-time homebuyers may be eligible for one or more of the programs offered by the Ohio Housing Finance Agency (www.ohiohome.org), and veterans may be eligible for VA loans through the U.S. Department of Veterans Affairs (www.va.gov).
Yes. Before closing, it is essential for the buyer to receive adequate title evidence and have it reviewed by an attorney. The type of title evidence that is provided and who pays for it are matters of contract and community custom. In most communities, an owner’s title insurance commitment and policy will be provided. A mortgage lender will probably require a lender’s commitment and policy. Obtaining an owner’s policy and a lender’s policy at the same time will reduce the cost. Title insurance is usually the best protection for a buyer. In a few communities, abstracts of title or an attorney’s title opinion may be acceptable forms of title evidence. Both of these forms of title evidence require an examination of various public records and a review of the documents found in the chain of title. Because the review involves technical knowledge of the law, it should only be done by an attorney.
To be sure that a title will be examined with your best interests in mind, hire your own attorney. Mortgage lenders may have their own agents examine the title to property for which they intend to lend money. Buyers sometimes assume that this examination eliminates the need for an independent title examination. It does not. A mortgage lender’s interest in the property differs from the buyer’s interest. The lender demands a margin of value above the amount of the loan, so if foreclosure becomes necessary, some expense in clearing the title would not harm the lender. The mortgage lender knows that most mortgages are paid and that small title defects in those cases will not cost any money; therefore, the lender may be satisfied with title that does not satisfy the buyer. An independent title examination warns the buyer of any possible further cost that may be required to clear title and could cause problems or expense while the buyer owns the land, at the time of the buyer’s subsequent sale, or for future owners of the property.
Title insurance policies are contracts between you and an insurance company. Under the terms of the policy, the company ensures that you hold a marketable title to the real estate described in the policy. Title insurance policies cover you against defects of title; however, there are exceptions to coverage that will be contained in the policy, and you and your attorney should carefully review the list of exceptions. The “Amount of Insurance” listed in Schedule A of the policy is the maximum amount that the company will pay if a title defect arises that is covered by the policy. This amount of insurance is usually the purchase price of the real estate.
A short sale involves a seller whose loan is or is in danger of being in default, and whose payoff balance is greater than the home’s value. To avoid foreclosure, the seller may ask his or her lender to accept less money than what is owed in order to sell the property to a potential buyer. Although short sales are relatively common, take care to make sure the seller’s lender will accept a short sale, and that the terms of the sale and closing are exactly what the seller’s lender approved. There are income tax and potential future collection issues that may affect a seller who has enjoyed the benefit of a short sale agreement. A final closing settlement statement that differs in terms of purchase price, concessions, costs or fees from what the seller’s lender originally approved could void the short sale agreement.
“REO” stands for “real estate owned” and generally refers to property that a lender has obtained following a foreclosure action. Although a bank will always have an inventory of REO property, more REO opportunities are available in a slumping economy and these properties can usually be purchased for less than historical values.
Because REO property has been through a recent foreclosure, you, as the buyer, should get an owner’s policy of title insurance. You should also confirm that there are no outstanding utility charges or assessments for government-ordered maintenance or clean-up.
Ohio law now mandates that closing protection coverage be offered to all parties in a closing transaction: the seller, the buyer and the lender. For a nominal cost, you may elect to buy closing protection coverage for yourself. The insurance underwriter provides this protection for you in case the closing agent steals the closing funds or fails to follow closing instructions provided by the parties. Your purchase of title insurance alone does not protect you against those actions, and you may want to buy closing protection coverage before you hand over funds to the closing agent.
Ohio closings occur either in escrow or at a round table meeting. In an escrow closing, the closing agent collects all closing funds and documents from the parties. Following verification of all funds and documents and any other closing instructions the parties provide, the agent will disburse the funds according to the settlement statement, record all relevant documents at the county courthouse and release all other documents. Some areas of Ohio use the round table closing format. In a round table closing, the parties sit down together to sign documents and exchange funds. Funds are delivered to the seller at the end of the closing and purchase documents are recorded and released after the funds have been disbursed. Local custom usually determines the closing format.
Whether you are involved in an escrow closing or a round table closing, all parties should ask to see the settlement statement, proposed deed, loan documents, title commitment, and all other closing documents beforeclosing. In this age of .pdf scanning and email, it is relatively easy to see all your closing documents well in advance of closing so that you may discuss any concerns with your lawyer and request necessary changes.
You should take extreme care when closing a real estate sale. At the closing session, be sure all papers are checked to make sure that the intent of the parties has been carried out.
For your protection, you should consult with your attorney to determine if you need legal representation at the closing.
© December 2014 Ohio State Bar Association. Used with permission.
Document last updated 12/23/2014. Please note: The Ohio State Bar Association periodically updates its LawFacts Pamphlets. For updated or additional information, please visit the LawFacts Pamphlets webpage.
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