A LEGAL GUIDE FOR BUYERS
Purchase and Sale Contract
The first step is entering into a valid purchase and sale contact with the seller. Although they are not required in order to close, keep in mind that agreements for the sale of real estate must be in writing to be enforced.
- A ten percent earnest money deposit is encouraged by the real estate brokers, but there is no legal requirement for any set amount. The more that is put down, the more secure the seller feels about the buyer; the less that is put down, the less that the buyer has at risk of losing.
- Unless the real estate broker signs a document specifically agreeing to be a buyer-broker, both the listing broker and the broker bringing the buyer to the table in a “co-broke” arrangement work for the seller. Don’t tell the broker anything you do not want the seller to know.
- Under Vermont law the dates in the contract are strictly construed, so buyers are well-advised to mark these important dates on the calendar. For example, if the closing date in the contract is on or before May 5th, the buyers are in breach if they fail to close on that date absent justification permitted in the contract.
- Items that are built-ins or are permanently affixed to the house are termed fixtures and are deemed to be part of the real estate. They are included in the purchase and sale contract. Items like furniture, window treatments, paintings and so forth are not automatically included unless it says so in the contract.
- If a structure is involved it is strongly recommended that the purchase and sale contract be conditioned upon a satisfactory structural inspector by a qualified inspector. Do not delay in retaining the structural inspector because most contracts require that the inspection be performed within 14 days of signing. The contract also sets forth specific dates as to when objections must be filed with the seller, or the right to object is lost. Structural issues timely raised by the buyer can be completely remedied, or the seller can opt to repair some or none of the issues, and may negotiate with the buyer for a compromised settlement. The buyer can decline to buy the property if the structural issues are not addressed by the seller. Sellers can offer to give the buyers a credit at closing toward the repairs in lieu of making the repairs.
- Be a prudent buyer and have us review the contract before it is signed.
Most buyers that require financing are aware that it is a new world out there for financing since the end of 2008. Eighty percent loans (20% down) are standard, with a variety of options as to interest rate and points.
- Don’t delay in submitting an application for financing. New RESPA regulations that came out at the beginning of 2010 have made the financing process much more difficult and complex that it ever was.
- Some buyers find it helpful to retain a mortgage broker to advise them as to which lender is appropriate for them.
- Some sellers offer financing to buyers in order to make their property more marketable. These almost always have a “balloon payment” feature in which the loan payment is based upon a 30 year amortization but in which the entire principal balance comes due in a shorter period of time, usually three years. The risk there is that the buyer will not be able to obtain bank financing when the balloon period is up.
- Lenders are required to provide a good faith estimate of charges, which gives a general idea as to what closing costs are likely to be incurred.
- In Vermont the buyer will incur the Vermont Property Transfer Tax of 1.25 % of the sale price at closing.
- Property taxes, condominium assessments, sewer district charges and heating fuel are pro-rated at closing by the attorney’s offices.
- A lender’s policy of title insurance is required by lenders on their mortgage loans, which insures the title to the property encumbered by the mortgage deed. Buyers are strongly encouraged to purchase a simultaneous owner’s policy insuring their equity in the property. Premiums are paid once at closing and are very reasonable considering the amount of coverage and the duration of the coverage. Owners, for example, are covered even after they sell the property. We are authorized to issue a policy as agent for the title company and can provide the necessary policies for the closing.
- Hazard insurance, or homeowner’s insurance, is required by lenders for all transactions. Buyers must usually pay the premium a year in advance. In the case of condominiums, there is usually a master policy purchased by the condominium association. At the option of the buyer, a policy to insure the contents against theft and fire, as well as protection from liability for injuries on the premises, can be purchased at reasonable cost.
- We can provide more details on the anticipated costs of closing.
The Title Examination
One of the most important jobs of the attorney is to perform a title examination to insure the buyer and the lender that the title to the property is marketable.
- The title examiner must go back at least forty years to be assured that the title is free of defects and is such that a reasonably prudent buyer would be willing to accept. The title examiner makes sure that the open mortgages are all known and that there are no liens, attachments or breaks in the chain of title. The examiner also looks for utility easements, rights of way, septic easements, restrictions on the use of the property and zoning violations. The status of property taxes is also checked, as is the status of land use permits.
- Title examinations are often performed by non-attorneys with limited training and experience. Vermont has some of the most complex land use regulations in the nation, so we do the title searches in-house.
- If a title defect is discovered it is brought to the attention of the seller’s attorney. Under most purchase and sale contracts the seller has thirty days to cure any title defects, or the buyer is excused from performing under the contract. Defects are usually minor, such as a paid but undischarged mortgage, but they can be serious enough to require going to court to clear title.
Buying undeveloped land requires a more sophisticated approach than buying developed property, unless an existing lot is being purchased only as a buffer and it has road access.
- A lot being purchased to build a residence on should be evaluated by a civil engineer, in order to be sure it is appropriate for a septic system. The height of the water table and quality of the soils, among other considerations, dictate what kind of a septic system is feasible. If municipal sewer is available, be sure that hook-up is available and that you are aware of the costs. Permitting by State and Town entities is usually required before construction begins.
- Be sure there is a legal right for access and for utilities, and what construction costs are involved to bring in roads and power. Regulations usually require potable water wells to be drilled outside of specified isolation distances from septic systems.
- A new property description will have to be created from a survey if a subdivision is involved.
- Consult with us to be sure the purchase and sale contract allows for reasonable investigation on all of the necessary issues, before you sign it. If the seller must obtain permitting before the sale, the contract should allow enough time to allow for the process which may take several months.
- Under Vermont law, once you buy a dwelling it is yours with all defects. The terms of the contract usually end at closing, and the buyer is deemed to have accepted the property in its condition by closing. The important lesson here is to do a thorough walk-through of the structure before you close. Make sure all appliances are working, there is water and power, and there has been no leaking or storm damage since the property was last seen. Bring any issues to our attention, as your legal representative, at closing.
- The vast majority of lenders use approved attorneys to conduct closings. We represent you, and not the lender, and we have decades of experience in dealing with lenders from coast to coast. We can help to facilitate the process, especially when out-of-state lenders unfamiliar with Vermont law are used.
- Loan documents are emailed to us by your lender and the loan proceeds are wired to us in anticipation of closing. We prepare a HUD-1 Settlement Statement to satisfy the lender and to provide a permanent record of the financial transaction for tax purposes. We cut all of the checks at closing; you need only wire us one sum using our easy to follow instructions.
- If you are unable to attend the closing, we can act on your behalf by power of attorney at no extra charge.
- It usually takes less than an hour to make you the owner of your new property. We handle the recording of the documents and all of the follow-up documentation for the lender.
The above is provided for general information purposes only and is not intended to give legal advice. Legal advice should be sought from a qualified professional.