Buying a Home: How to Protect Yourself
Buying a home is likely the biggest and most complex transaction you will ever make. Though most home sales work out well, some do not and result in costly disputes. There are ways however, to reduce the chance of problems. Here are tips.
The Contract. When you find the home you wish to buy, you will submit a written offer. If accepted, a contract will then be prepared and signed. It is vital for you to read and understand the contract before signing, as it covers all aspects of the purchase, including the sale price, deposit amount, repair requirements, mortgage contingency clauses and other matters vital to your purchase.
Even though the contract is on a preprinted form, remember that all terms are still negotiable. It is therefore a good idea to have your lawyer review the contract before you sign it. Amongst the clauses in a contract maybe the following:
A mortgage contingency clause. This gives you the right to cancel the contract if you are unable to secure mortgage financing.
A home inspection clause. This permits you to cancel the contract if an inspection shows serious defects. If there are minor problems, make sure the contract states whether the seller will fix them or you are to get a credit and do the work yourself.
A “sale of other home” clause. This lets you cancel the deal if you cannot sell your own home.
A list of items included in the sale. When you buy real property, you’re buying the land and everything attached to it. But problems can result if the seller takes things you thought belonged to you. To avoid disputes, be sure the contract states all items included in the sale. Don’t rely on oral promises from the seller, as they are hard to enforce.
Title Insurance. “Title” is your ownership, and your right to use the property without other people saying they have rights in the property. Before you buy a home, seek legal help to make sure you are getting clear title. You should also buy a title insurance policy. This protects you from problems in the chain of title, such as liens or forged deeds. It pays your losses if someone makes a claim.
Inspections. Have the home inspected by a professional. Although New York now requires sellers to make full disclosure about the property, sellers may not be liable for defects if they are unaware of them. In addition, a seller may not think some problems are serious enough to warrant disclosure.
It is imperative you do not sign a contract without the assistance of an attorney. An attorney can make certain that the contract has provisions that will not cause problems or difficulties, ensuring you clean title.
Tips for Buyers
- Make sure the contract contains provisions to protect you. One common provision is a “mortgage contingency clause.” This provides that your deposit will be refunded if the sale must be canceled because you were unable to secure mortgage financing.
- Another provision to help protect you is a “home inspection clause.” This lets you cancel the deal if an inspection shows there are serious problems with the house.
The Selling of a Home
In order to sell your home, it will be necessary to sign a contract of sale. What is a contract? A contract is defined as an agreement between two or more persons which created an obligation to do or not do a particular thing. In a traditional real estate transaction, the Contract of Sale amongst other things, is contingent upon three  specific points:
- The purchaser’s ability to obtain a mortgage;
- Whether the property is infested with termites or any other wood destroying infestation, and whether you are willing to cure the condition and repair any damage;
- The existence of title defects and/or liens that may effect the premises, and which may prevent you from transferring the property free of defects and/or problems. That is to say “give good marketable title”.
Should any of these conditions or others exist, which are your obligation to cure, problems may arise and the Contract may be terminated. If the contract is cancelled, the deposit paid by the purchaser may have to be refunded. The contract as a result, will have no further force or effect and both you and the buyer will be released from the Contract.
It is to be noted however, that should you fail to arbitrarily close title, or should you fail to meet your contract obligations, you may be held to be in breach of the Contract. In such event, you may be subject to a law suit and therefore may be held liable and responsible for the buyer(s) damages, expenses, legal fees, etc. In addition, the purchasers may be able to compel you to sell the property to them in an action known as an ACTION IN SPECIFIC PERFORMANCE.
As a seller, you are responsible for certain “representations” or guarantees which are set forth in the Contract.
You will be required to deliver possession of the premises, at closing or at a later date in a “broom clean” condition
It is your responsibility to warrant that the plumbing, heating and electrical systems are in working order and the roof is free of leaks up to the date of closing or thereafter should you remain in possession after closing
You should also be aware that as a seller, you are responsible for certain other expenses. You will be responsible for any brokerage fees. If a Real Estate Broker is involved, any agreement that you may have with him should be read carefully.
Other expenses that you will incur include the payment of New York City and New York State transfer taxes. Each tax is based upon the sales price of the property. New York City transfer taxes are 1% for one or two family homes where the sales price is less than $500,000.00. If the sales price exceeds $500,000.00 the transfer tax is 1.425% of the sales price. New York State transfer taxes are 0.04% of the sales price.
It should also be noted, should the contract be cancelled because of your failure to meet your contractual obligations, you may be held responsible to pay the dost of the buyer’s title search, including survey charges.
The contract of sale will also provide for a “closing date”. The closing is defined as the final steps of the transaction whereat the balance of the sales price is paid, the mortgage is secured and the deed is delivered. PLEASE NOTE: The date which is stated in the Contract of Sale is not a definite date and under no circumstances should you make any arrangements to move or to transfer possession of your belongings, until such time as you have been advised of the date and time of closing. The contract will provide for an “on or about closing date.” Under New York practice, either party has a right to request a reasonable adjournment beyond said closing date. This should be considered in finalizing your plans to vacate the premises.
Avoiding Liability When You Sell a Home
A fear of many home sellers is that months or even years after the sale, the buyer will sue for fraud, claiming a defect was not disclosed. Fortunately, there may be ways a seller can prevent this from happening.
One way is to have your home inspected by a professional engineer before listing it for sale. In this way you can repair any defects. If you choose not to make any repairs, New York requires that you to disclose known defects to the buyer in order to avoid future liability.
Many sellers believe they can protect themselves against a lawsuit by selling their home “As Is.” “As Is” merely means the seller need not make or pay for repairs. It does not mean the seller can conceal known defects from the buyer.
Home defect lawsuits are common. Having the home professionally inspected before listing it, making the necessary repairs, and making certain that the buyer gets their own inspection can help sellers avoid these problems. Buyers who believe a seller has concealed a known defect, may seek legal advice to find out if a claim can be made.
Tips for Sellers
- Make repairs before selling. This includes the plumbing, electrical and electrical systems and roof, if necessary. Avoiding the need for the buyer to make these repairs will avoid future difficulties.
- Make the buyer’s good faith deposit nonrefundable. That is, make sure the contract states you can keep the deposit if the buyer does not complete the purchase in accordance with the conditions set forth in the contract.
- Sell the home “as is.” This means the home is sold in its current condition and the seller will not pay for repairs. It does not eliminate the duty, under New York law to make full disclosures to the buyer of seller’s known defects.
- Disclose important defects in writing. Encourage the buyer to get a professional inspection. Respond honestly to the buyer’s questions. In this way, the buyer will be aware of any problems that exist and will reduce the risk of the buyer canceling the contract or suing for defects at a later date.
- Make sure the contract specifies items included in the sale. Sales of homes typically include the land and everything attached to it. Many disputes occur when sellers fail to inform the buyer of what is included in the sale. To avoid these problems, the contract should list all items of personal property included in the sale.
How to Hold Title to Your Home
In economic times with an active real estate market, many people change homes or buy a first home. Many buyers give little thought to how to take title to the home. But this decision is vital, as it affects who can sign documents regarding the property and how the property can be transferred in case of death. Here are some common ways to hold title to a home.
- Sole ownership. This is how an individual holds title to property. This ownership form does not apply to property bought by married couples. However, if a married couple wants to put title in the name of one spouse, the deed could say the spouse is “sole owner.”
- Joint tenancy. This ownership form is available when two or more co-owners each have an equal share of property. The deed must state title is taken as “joint tenants.” Each joint tenant is an equal co-owner of an interest in the entire property. The key characteristic of joint tenancy is that when one co-owner dies, his or her ownership interest goes to the surviving co-owners. Ownership passes by law, not by a will. Because of this feature, the last surviving joint tenant will own the entire property. If two people want the other person to receive their interest in case of death, joint tenancy would be an ownership form to consider. For married couples, this form of ownership is called Tenants by the Entirety. In contrast, if a co-owner wants to be able to give away his or her interest in a will, joint tenancy would not be the means by which ownership is to be taken.
- Tenants in common. If property held by two people is not community property or joint tenancy, it’s a tenancy in common. Tenants in common are also co-owners of property. Unlike joint tenancy, though, interests of tenants in common need not be equal. Also, each tenant in common can pass his or her interest by a will. As a result, the remaining tenants in common could find themselves owning property with somebody else. If two or more people own property and each wants to be able to give away his or her interest by will, they should consider holding title as tenants in common.
- How title is held has important tax, estate and other implications. Therefore, it is vital to seek professional help when deciding how to hold title to property you own.
Buying a Home: The Importance of Title Insurance
When you buy a home, be sure to get title insurance. Title insurance protects you from many types of title problems. “Title” is your right as the owner of the property to use and possess it free from claims of others. Common title problems normally covered by insurance include judgment liens, mechanic’s liens, income tax liens, and unpaid property tax liens. Also usually included is protection against forged signatures on earlier deeds in your chain of title.
A title insurance policy protects you against monetary losses and the costs of defending yourself in case someone makes a claim. Your lawyer can advise you how to obtain a policy and about its terms.