Why Do You Need A Real Estate Lawyer?
The purchase of a home is a very important investment. The last thing you want is to be surprised by unexpected problems. A real estate lawyer can protect either a seller or a buyer, provide sound legal advice, and minimize the risks associated with a real estate transaction.
The essential elements in the sale and purchase of real estate come together in the agreement of sale. To be enforceable, this document is required by law to be in writing and signed by the parties to the transaction. The agreement will control the transaction and will prescribe much of what will follow between the parties, so it is vitally important that the agreement be well thought out and explicit with regard to the exact terms of the transaction. The real estate agreement must be comprehensive: All terms of the sale must be settled with none left to be determined by future negotiation.
The agreement will specify the quality of title that the seller is to deliver and will prevent the seller from turning around and selling the property to another party while the buyer is awaiting the title report. The agreement will also prevent the buyer from changing their mind and backing out without cause.
The key terms in a real estate agreement are:
1. Marketable Title
The kind of title that a seller must deliver will depend on the terms and provisions of the agreement of sale.
If the agreement is silent, the seller must deliver marketable title, free from encumbrances.
If the agreement requires the seller to deliver title “free from all defects or encumbrances,” the buyer may be able reject title if there is even a trivial encroachment or a beneficial easement. Usually the seller lists in the agreement the encumbrances that exist and the buyer agrees to take title subject to these encumbrances (e.g., building restrictions, existing mortgages, etc.).
If the agreement is subject to general language such as “conditions and restrictions of records, easements, existing tenancies, any state of facts which an accurate survey may show,” etc., the seller can probably succeed in delivering.
One practical way for the seller and buyer to make definite the kind of title they are talking about is to check the examination of title made at the time the seller acquired the property, and if the restrictions that then existed are satisfactory to the buyer, the seller should commit to deliver a title subject only to the limitations existing when the property was acquired.
Another way is for the agreement to require the seller to deliver a marketable title and policy of title insurance. This permits the buyer to walk out on an agreement if the title is not marketable or if the title insurance is not forthcoming. If the agreement merely requires the seller to furnish title insurance, then the buyer is required to take a title even if it is technically unmarketable as long as a title company will issue insurance, which it will sometimes do on the basis that there is little business risk in a technical defect that may render the title less than fully marketable.
What renders a real estate title unmarketable? Liens, adverse possession, easements, and outstanding mineral rights are examples. As a general rule, zoning ordinances do not serve to render title unmarketable, but a seller’s misrepresentation that the property is zoned for the buyer’s intended use may raise the ordinance of the status of encumbrance.
In order to avoid delay caused by clearing a defective title, the buyer may want to fix a time for delivery of the deed and have the agreement provide that time is of the essence. If the seller does not have good title at the time fixed for delivering the deed, the buyer can relieve himself of the obligations of the agreement.
The buyer should insist that the agreement specify the kind of evidence of good title that the seller will be required to produce: e.g., title insurance, abstracts, certificate of title, etc. Evidence of title should show the condition of the title as of the date on which the deed is delivered rather than the date of agreement. The agreement should give the seller a reasonable time to furnish the buyer with evidence of title, the buyer a reasonable time to examine such evidence and point out any defects, then a further reasonable time for the seller to eliminate or cure any such defects and a further time within which the buyer can decide to accept or reject a title still carrying a defect that the seller has been unable to cure.
2. Deposits
When the real estate buyer makes a deposit or a down payment on the agreement, that money applies as part payment of the purchase price if he conforms. If the buyer defaults, the deposit can be retained by the seller. This should be specifically covered by the agreement.
3. Contingencies
The real estate buyer’s obligation may be made subject to contingencies such as an ability to obtain a mortgage or sell a present home at a minimum price or higher, the ability to get a zoning variance, etc. It is important that the agreement spell out the kind of mortgage, the kind of variance, who has the responsibility for getting the mortgage or variance, the time within which the contingency is to be satisfied, when the deal is to be terminated if the contingency has not been satisfied by that time, etc. Specify who is to carry the risk of loss for damage and buyer’s right to cancel or receive compensation.
4. Limitations as to Use
The buyer’s real estate attorney will examine the types or restrictions—area restrictions, and use restrictions imposed on the property either by government regulation or by private covenant. In order to protect yourself, you may require a provision that the buyer will not have to buy the property if its intended use is prohibited by such restrictions. Typically, this type of provision will give the buyer an option to terminate the agreement during the specified period of time if there is any prohibition on the particular use for which the property is intended.
5. Zoning
The real estate seller will ordinarily provide a warranty that existing structures on the property are not in violation of any zoning regulations and ordinances. If the buyer plans to change the existing use of the property, this warranty is not enough. The same considerations will also apply to a buyer who is acquiring vacant land on which a building devoted to a particular use is to be erected. Here the buyer will insist on a repetition by the seller that the buyer’s contemplated use of the land will not violate zoning regulations and ordinances. The seller, of course, may not be willing to offer such assurances.
6. Performance Time
The seller may want to receive the proceeds of the sale of the property on a particular day in order to either enter into a new venture or discharge an obligation. Therefore, making time for performance under the agreement is of the essence. Under a “time of the essence” arrangement, the seller’s obligation to convey the property to the buyer will be relieved by the buyer’s failure to meet the payments on the specific day.
7. Personal Property
A buyer who acquires a building ordinarily expects to acquire title to the property within that building (as, for example, gas ranges and refrigerators in an apartment house). However, gas ranges and refrigerators may be personal property and will not be included in the sale of the real estate unless there is an express provision covering them. It is, therefore, very important for the agreement to specify all of the personal property included in the sale and avoid any questions thereon.
As you can see, representation and sound legal advice are critical for anyone entering into a real estate transaction and such legal advice should precede the execution of the agreement of sale.
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