REAL ESTATE BASICS
Buying or selling real estate may be the largest single investment - and one of
the greatest satisfactions - of your lifetime. Along with a substantial financial
commitment, such transactions usually involve risks, technicalities and legal considerations.
GT Title Services provides valuable assistance and assurances to intervals purchasing
or selling real estate. Through its licensed real estate attorneys, title officers
and escrow officers, GT Title provides cost-effective, professional-quality real
estate transaction services. GT Title is able to provide clients COMPLETE assurance
in their real estate transactions by providing the important combination of legal
advice (through its attorneys) along with title insurance policies and escrow/closing
Starting the Process
Before signing any document or paying any money, you should carefully examine your
requirements, resources and needs for professional help. An experienced, reputable
real-estate broker may be indispensable. When you buy or sell real estate you may
also come into contact with bankers or other lenders, title and mortgage officers,
inspectors, or other authorities whose function you should understand. Of all your
advisers, a real estate attorney may be in the best position to assist you with
each phase of the transaction.
Types of Documents Used
Various documents are used to specify rights and obligations in real-estate transactions.
Preprinted forms, individually drafted forms, or a combination may be used. Typical
documents include listing agreements, real estate purchase contracts,
and financing agreements.
The usual form of contract between a seller and broker is a listing agreement.
It is usually a printed form, but the amount of commission, the duration of the
agreement and duties of the broker are all items that may be negotiated. There are
several forms of listing agreements, with great variation in terms, liability, duties
and services rendered, which are normally negotiable.
Real Estate Purchase Contract
Often called an earnest money agreement, a real estate purchase contract is prepared
to specify all the terms and conditions of the transaction. This document states
the price and terms under which the buyer is obligated to buy and the seller is
obligated to sell. It is a legally binding contract which establishes the respective
rights and responsibilities of the purchaser and seller. An agreement for the sale
of real estate is void and unenforceable unless it is in writing and signed by the
buyer and seller. The buyer often makes a deposit, known as an earnest money
deposit. The amount can vary and the deposit is usually applied to
the down-payment obligation or to the buyer's share of the closing costs. The importance
of the real estate purchase contract cannot be overstated, and it is advisable to
have an experienced real estate broker or a real estate attorney review the document
before signing. A buyer may lose the deposit and be liable for damages if an agreement
is signed and he or she fails to abide by its terms. A seller who fails to perform
after signing the agreement may also be liable for damages.
In addition to naming the parties, price and terms of the purchase, a purchase and
sale agreement should also include the following items: legal description of the
property; condition of the title (or legal right to ownership) and assumed debt;
warranties of title (restrictions, rights or limitations) condition of property
and of zoning or use rights (if applicable); prorations of taxes, special assessments,
obligations and prorations regarding insurance premiums; stipulation of who bears
costs for such items as recording fees; financing, if it is a contingency of the
purchase; complete terms and documents to be used if the seller is supplying financing
and receiving security for such financing (with copies of any such documents attached);
items of furnishings, fixtures or appliances to be included or excluded; right of
inspection (if any) given the buyer; date of possession; disclosures regarding the
properties conditions; and conditions under which an offer may be canceled, as well
as provisions for return or forfeiture of the deposit.
Banks, mortgage or insurance companies, some credit unions and other institutions
are in the business of lending money to finance the purchase of real estate. Some
financing, such as FHA-insured and VA-guaranteed loans, is insured by the federal
government and may offer lower financing charges or extended terms of repayment.
As an alternative to a conventional lending institution, a buyer may find a seller
who is willing to finance the transaction. Under these arrangements, a seller receives
a promissory note from the buyer and uses a mortgage, deed of trust, or similar
instrument to secure payment and guarantee performance. Other financing options,
such as the use of a land sales contract, assumption of the seller's mortgage, graduated
payment plans, and adjustable-rate loans may also be worth investigation.
If financing is required to complete a transaction, a buyer should be sure the purchase
and sale agreement specifies that requirement as a condition of the purchase. Furthermore,
the buyer usually has the responsibility for finding a financing commitment by a
certain date. The agreements used to secure a debt with real property are usually
lengthy and complex. Such agreements affect the payment of money to a seller, a
lender, or both, and establish a security interest in your real property or home.
Even with a "standardized" form, legal advice may be necessary to fully understand
the details, obligations and legal consequences of the documents. It may also be
necessary for your lawyer to tailor certain items to meet your requirements.
Use of Security Instruments
Several methods and various security instruments may be used for real-estate loans,
each with different obligations and consequences. A mortgage and
a deed of trust are security instruments that pledge to the lender
an interest in your real estate to secure payment of a promissory note.
A mortgage is the instrument, usually held by the lender, by which the property
is pledged to secure the payment of a debt or obligation. A deed of trust has similar
functions, but is usually held "in trust" by a trustee and is the security instrument
generally used in Utah. The promissory note acknowledges a borrower's formal obligation
to repay the loan. Under some types of security instruments, a buyer who fails to
pay on time can lose the pledged property or may be required to pay additional amounts
on the loan. A real estate installment sales contract or a
land sales contract is an agreement between the seller and buyer that
states the purchase price and method of payment, as well as other rights and duties.
The buyer usually does not receive a deed (or legal title) to the property until
all required payments are made. In the event of default, payments may be forfeited,
and the buyer's interest in the property may be lost.
Expenses and Taxes
In addition to the loan, there may be other costs involved in buying property. These
costs will usually be itemized at the time of closing. In addition to fees and expenses,
every real estate transaction has certain tax effects upon the parties involved.
Steps may be taken when negotiating the initial purchase and sale agreement to reduce
or adjust tax obligations or postpone payments. Federal income tax, estate taxes,
excise taxes and other consequences are complicated and the laws frequently change.
When you are either buying or selling real estate, advice from a real estate attorney
is highly beneficial in understanding and dealing with taxes.
Real estate title is evidence of legal ownership. When selling
real estate, it is important to obtain assurance of your ability to transfer the
property free and clear of defects. When buying real estate, it is important to
assure your right to occupy, use or eventually resell it without interference. Previous
ownership and a title's "marketability" can be verified by title insurance.
Title Insurance offers protection against financial loss and expense
of defending your title in court. Owner's title insurance protects the buyer against
future loss resulting from current defects in the title to the property. Before
closing, the title company conducts a thorough examination of public records to
uncover possible title defects. Easements, unpaid taxes or mortgages, judgments
against previous owners, and other defects will be disclosed or cleared before closing.
If a problem arises after closing, and the defect is covered by your policy, your
title insurance company will defend your title to the property, in court if necessary,
and at their expense. Owners title insurance policies insure your property for as
long as you maintain your interest in it against these hidden risks that would not
be disclosed by the public records: forgery, fraud, undue influence, false impersonation,
misrepresentation, undisclosed or missing heirs, wills not properly probated, mistaken
interpretation of wills, incompetence of grantors, birth of heirs subsequent to
a will, deeds executed under expired or false powers of attorney, confusion due
to similar names, rights of ex-spouses of former owners, incorrect indexing by the
county, clerical errors in documents, and delivery of deeds after the death of a
grantor. The fee for title insurance is a one-time premium which
is paid at closing. In Utah, this premium is normally paid by the seller. If you
are purchasing the property with a loan, your lender will require you to obtain
lender's title insurance to protect their interest in the property.
The final stage in the purchase of real estate is called closing
or "settlement." This sometimes complex procedure occurs when the parties submit
the final documents required to complete the sale according to terms of the purchase
agreement. Money and documents are usually exchanged at the time of closing and
deposited in escrow with the escrow agent. Title companies usually provide escrow
services. Escrow services by a third party are essential to the proper
closing and recording of instruments and delivery of monies. It should be remembered,
however, that escrow agents obtain information and take their instruction from the
parties; they do not guarantee or protect the rights of either party in assuring
that documents are consistent with either party's understanding of the transaction.
One of the most important instruments for closing is a deed, which
transfers ownership of property from the seller to the buyer. There are several
types of deeds, such as "warranty deed," "special warranty deed,” and "quit claim
deed." The type of deed affects the buyer's rights against the seller. The manner
in which the buyer's name appears on the document is also important, since it may
affect the form of ownership and the tax liability of the owner. All documents of
ownership of real property and those reflecting a security interest in real property
should be recorded (officially filed) in the county where the property is located.
This procedure is necessary to protect one's ownership of property and is usually
performed by the title company. To be eligible for recording, the documents must
meet certain statutory requirements.
GT Title Services
licensed real estate attorneys, title officers and escrow officers, GT Title Services
provides cost-effective, professional-quality real estate transaction services.
GT Title is able to provide clients COMPLETE assurance in their real estate transactions
by providing the important combination of legal advice (through its attorneys) along
with title insurance policies and escrow/closing services.