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Real Estate Frequently Asked Questions

What is a deed?

A deed is the document that transfers ownership of real estate. A deed includes the names of the buyers (grantee) and the name of the sellers (grantor), and provides a legal description of the property. The deed is signed by the person transferring the property and the seller’s signature must be notarized. A deed for property must always be in writing, and it must follow state laws. The deed language or forms or even paper sizes may defer by state, so it is important to have an experienced real estate attorney prepare and review the deed to ensure that is properly executed.

What are the most common forms of deed?

There are many types of deeds. The most common form of deed is a warranty deed or sometimes called a grant deed. A warranty deed transfers ownership and explicitly warrants the buyer that the seller has good title to the property. A warranty deed offers the greatest protection for buyers since the seller must promise good title to the property, with no liens and encumbrances not disclosed in the deed. The seller also agrees to defend against any defects found in the deed. The other common form of deed is the quitclaim deed. A quitclaim transfers any ownership interest the seller has in the property, but makes no promises about what that interest is or that title is good. Quitclaim deeds are most commonly used to clear up title problems, to transfer property between spouses after divorce, or in informal transactions between friends and family.

Which are the forms of title available?

Where two or more people are purchasing property together, the real estate lawyer must also determine how they will take title, commonly asking whether they wish to hold the property as joint tenant or as tenants in common. This makes a great difference on how the property is treated upon death of a co-owner. A joint tenancy involves the right of survivorship. This means that when one joint tenant dies, that owner’s share passes automatically to the surviving joint tenant. This happens whether or not the deceased owner had a will. The joint tenancy is a popular form of co-ownership between husband and wife. Some states also recognize a tenancy by the entirety which is a form of joint tenancy that can only be created between husband and wife. By contrast, tenancy in common is a form of shared ownership where tow or more persons own property without the right of survivorship. Then, when a tenant in common dies, the interest of the deceased owner passes to his heirs or the persons named in his will.

Do I need a home inspection?

Inspections are designed to disclose defects that could materially affect the property’s safety, livability, or resale value. Obtaining a home inspection can take some worry out of the home buying process. An independent home inspector will give a buyer a complete picture of the condition of the property he is considering buying. An inspector does not evaluate whether or not the buyer is getting good value for his money. Rather, the inspector checks the safety of the home, focusing on the structure, construction, and mechanical systems to determine whether any repairs are necessary. Generally, an inspector checks the electrical system, the plumbing and waste disposal systems, the water heater, insulation, ventilation, heating and air conditioning systems, the water source and quality, the potential for pests, and the foundation, doors, windows, ceilings, walls, floors, and roof. A buyer should obtain an inspection before signing the contract. If that is not possible, a buyer may include an inspection clause in the contract when negotiating for the property, giving the buyer an opportunity to back out of the contract if the inspection discloses serious problems. An inspection clause can also specify that the seller must fix certain problems or make monetary concessions for any problems before the buyer will purchase the property.

What is the difference between a co-op and a condominium?

A condominium is a common-interest community in which individual units are separately owned but the owners share an interest in common areas. With a cooperative, or co-op, buyers purchase shares of stock in a corporation that owns a building. A condominium owner has title to his unit; a co-op owner receives a proportionate amount of shares in the corporation that owns the building, based on the unit’s proportion of the building. For the purposes of income tax laws and other laws regarding real estate, a condominium is treated as a single family home. But an association has the right to impose maintenance fees, demand escrow payments for large repair bills, and manage the operation of the entire building. Owners of co-ops must abide by the corporation rules; additionally, if they fail to pay their fees, they may be evicted because they do not hold title to their unit.

What is the role of the real estate broker?

The most common fixture of the real estate purchase decision is the consultation with a real estate broker. The broker serves as an agent of either the buyer or the seller and is the intermediary for the negotiations between the parties. Typically, the broker acts as an agent to the seller. This means that the broker gets paid by the seller, usually as a percentage of the sales price of the home. In New York State, brokerage agreements need not be in writing, but it is better if they are. At a minimum, it should contain the terms and conditions under which the broker will be paid, the amount that the broker will get and the period of any exclusive given to the broker. It usually also provides that no commission will be earned until and unless there is a closing. When a broker is retained by the seller, the broker is the seller’s agent. As such the broker has a fiduciary relationship to the seller. Accordingly, the broker will be trying to get the best deal for the seller. The buyer can enter into a written agreement with his own broker in which the broker would be designated a buyer’s broker. Even though the broker’s compensation is paid by the seller, a buyer’s broker owes his loyalty to the buyer and will strive to get the best deal for the purchaser.

What is a binder and is it the same as a contract of sale?

When the long search ends and the buyer has found the property they want, the parties may sign a binder. The binder does not serve as a contract but rather as evidence that the buyer and seller intend to contract. The buyer will usually give the seller a small amount and the seller will agree not to sell to anyone else for an agreed period of time while the parties and their lawyers negotiate and enter into a formal contract. The binder is usually refundable when and if a contract is entered into between the parties.

What is title insurance?

Once the contract is finalized and signed, the attorney will arrange for a title search to ensure that the seller has the legal capacity to make the sale and there are no impediments to the buyer acquiring the title to the property free and clear. In a way, title insurance is the opposite of your home’s casualty and liability insurance, which repays in case of injury or damage occurring after the effective date of the policy. Title insurance covers matters that occurred before the policy’s effective date, but were discovered later.

What is the difference between the owner’s policy and the mortgagee policy?

There are two kinds of title insurance. The owner’s policy covers losses or damages you suffer if the property really belongs to someone else, if there is a defect or encumbrance on the title, if the title is unmarketable, or if there is no access to the land. The policy should have a section setting forth what is covered as of the effective date. The lender’s mortgagee policy protects the lender. It includes all the protections from the owner’s policy, since lenders care about encumbrances too. Important clauses for the lender are those covering losses the lender would suffer if another creditor were first in line.

What is a Reverse Mortgage?

A reverse mortgage is an arrangement under which a homeowner gets a loan but is not required to make payments or repay the loan as long as the homeowner continues to reside in the property and keeps taxes and insurance current. The lender will recover the principal amount of the loan plus interest when the property is sold or when the homeowner no longer resides in the property. To qualify for a reverse mortgage, the homeowner must be 62 years of age or older, the homeowner must be the primary resident of the property and must participate in a free consumer information session provided by an independent HUD approved counseling agency.

What happens at the Closing?

A closing, or settlement, is the meeting during which ownership of the property is transferred from the seller to the buyer. The buyer and the seller, their attorneys, the real estate brokers, a representative of the lender, and the closing agent typically attend the closing. In the case of a house or a condominium, a deed is signed by the seller over to the buyer. In a co-op, the proprietary lease is assigned and a new stock certificate issued in the name of the buyer. If the transaction involves financing, a mortgage or some other loan security document will be signed, evidencing the security interest which the lender has in the property, its collateral. The buyer typically presents his paid homeowner’s insurance policy or a binder and receipt showing a paid premium. The closing agent will list the amounts the buyer owes the seller and the amounts the seller owes the buyer. Once the parties have verified that the numbers are correct, the parties sign the closing statement, the buyers signs the mortgage note and the mortgage, and the seller gives title to the property in the form of a signed deed.

What is included in the closing costs?

Closing costs are one of the least understood aspects of the home purchase process. Closing costs vary somewhat by community, but they are generally between four and six percent of the home’s purchase price. Common closing costs include attorney fees, escrow fees, property taxes to cover the period to the closing date, interest from the closing date to one month before the first monthly payment, loan origination fees, recording fees, survey fees, mortgage insurance, title insurance, loan discount points, the first escrow payment for future real estate taxes and insurance, homeowner’s insurance policy payment, appraisal fees, pest or other specific inspection fees, and document preparation fees.