Purchasing Your Home
For most people, the purchase of a home is their largest single lifetime investment. There are many complex aspects of a residential real estate transaction. However, with competent assistance and advice, the purchase of a home can be a pleasant and rewarding experience. The purchaser should seek the advice of persons knowledgeable about residential real estate transactions, including a real estate agent, attorney, mortgage banker, insurance agent, title insurer and persons capable of inspecting the condition of the property.
The purchase agreement. A contract to purchase real estate must be in writing to be enforceable. Terms of the sale should be put into a single written purchase agreement. If a term is not in the written agreement, the courts will not enforce it. The real estate agent prepares a proposed "offer" on a printed form purchase agreement which is signed by the purchaser and presented to the seller. When accepted by the seller, the purchase agreement (or "binder") is a binding contract which fixes the terms of the sale and the rights and obligations of the purchaser and seller. It is at this stage before the agreement is signed, that the purchaser should retain an attorney either to review the agreement before it is signed or to draft a contract with the purchaser's interests in mind. This is not to say that the agent does not have the purchaser's interests in mind. But legally the agent is accountable to the seller, not to the buyer; his commission is paid by the seller, and the agent earns no commission if the sale does not close.
Terms of the agreement. Oral agreements about aspects of the purchase are not enforceable, and even written "side agreements" may be unenforceable if not specifically referred to in the purchase agreement. The agreement should contain at a minimum the following provisions:
The names and addresses of the sellers and purchasers, including how purchasers are to take title (as joint tenants, as tenants in common, etc.).
The purchase price and how it is to be paid, including the amount of down payment, earnest money deposit and who is entitled to the earnest money deposit if the sale does not close.
Arrangements for financing, especially the purchasers' right to cancel the contract if unable to secure financing acceptable to the purchasers.
The legal description of the property, including fixtures such as drapes and carpet, and personal property included in the sale.
That the seller has good title to the property, subject to reasonable reservations, restrictions and easements. The purchaser should require the sellers to furnish the purchasers an owner's policy of title insurance containing only such exceptions as may be acceptable to purchasers and their attorney.
The condition of the property at the time of closing, including a provision that the condition of major components of the house, such as roof, plumbing, heating, air conditioning and major appliances shall be satisfactory to purchasers. The contract should specify any repairs or replacements which seller has agreed to make.
Whether a survey and appraisal are to be made and, if so, at whose expense.
All expenses to be divided between the seller and purchaser, such as property taxes, insurance and utilities, and the date on which the purchaser becomes responsible for paying them.
The method of handling any escrow account containing reserves for payment of taxes and insurance held by the seller's mortgage company.
Seller's statement of the condition of the property disclosing any non-obvious defects.
The date the sale will close and the purchaser will be entitled to possession.
A list of all closing costs and who is responsible for paying them.
That all closing documents must be acceptable to purchaser's attorney.
That the terms of the contract, particularly any warranties as to the condition of the property, will survive the execution and delivery of the deed.
Which party bears the risk of loss if the property is damaged or destroyed between the time the purchase agreement is signed and the closing date.
The name of the sales agent and commission due them, if any.
Signatures of the parties. The signature of all co-owners selling the property are required.
Financing. Unless the purchaser pays cash, he will finance his purchase in one of three ways:
- By paying cash for the seller's equity and assuming an existing mortgage.
- By obtaining a new loan from a lending institution or other source.
- The seller will finance all or a portion of the purchase price secured by a mortgage, trust indenture or real estate contract.
The different types of available financing and the documentation for the debt and security obligations vary from transaction to transaction. Mortgage financing is furnished by various financial institutions which compete with one another. Like all goods and services the cost of mortgage financing varies and it pays to shop. Most real estate agents are familiar with the various financing alternatives available in the community and can assist the purchaser in applying for a loan. However, the purchaser should also seek advice from his attorney and financial consultant to be sure that he fully understands his rights and obligations under the financing documents. This is especially important in those transactions where the seller is financing all or part of the purchase price. Some of the financing documents offer more protection to purchasers than others and the alternatives should be fully discussed and considered before the purchase agreement is signed.
Title. Prior to closing, the purchaser and lending institution should investigate the title to determine that the seller owns the property and has the power to convey it and to determine whether there are any reservations, restrictions or liens against the property that would impair the property's use or value. In Montana, the title examination is generally handled in one of two ways.
The first is for the seller to furnish at his expense an abstract of title prepared by a title insurance company. This is a compilation of deeds, mortgages, liens and other documents concerning the title which have been recorded in the official land records of the county where the property is located. The abstract must then be examined by the purchaser's attorney. He then gives an opinion as to the status and quality of the title.
The most commonly used method of investigating the title is title insurance. With title insurance, the title insurance company investigates the title and determines whether and to what extent it will insure the title against challenges and claims in the future. Typically, the title policy is issued for the amount of the purchase price.
In addition to the owner's policy of title insurance which insures the purchaser, most lenders will also require that a mortgagee's policy of title insurance be issued which insures the lender. The mortgagee's policy insures that the purchaser is the owner of clear title to the property and that the lien of the lender is a first lien against the property. When the owner's policy and mortgagee's policy are issued simultaneously, the premium for the mortgagee's title policy is a nominal amount.
All title insurance policies have certain standard exceptions and exclusions from coverage. Special exceptions are often added to the policy. Thus, it is advisable for the purchaser to have his attorney review the title policy prior to closing to determine whether the exceptions and exclusions are acceptable to the purchaser. It is possible to have some of the exceptions or exclusions deleted from the policy for an additional premium.
In some situations, the purchaser may wish to require a "title insurance commitment" prior to closing. This is a written commitment to insure issued by the title company which states the various exclusions and exceptions which the policy will contain along with any conditions which must be satisfied by the seller or purchaser before the policy is issued. The title insurance commitment gives the purchaser and his attorney an opportunity to evaluate the quality of the title and the title insurance policy prior to closing.
The purchase agreement should specify how the purchasers are to receive title to the property. In the case of two or more purchasers, title can be taken either as joint tenants with right of survivorship or as tenants in common.
There are many differences between these types of ownership, but the most important difference is that upon the death of a joint tenant, title to the property passes automatically to the surviving joint tenant without probate. With the other type, a probate is usually necessary to pass clear title to the decedent's heirs.
Frequently, there are different tax consequences associated with the different forms of acquiring title to real estate and the language used must be precise. The purchaser should seek the advice of his attorney or tax consultant with respect to the best method of taking title.
Closing. After the purchaser is satisfied with the condition of the premises following any inspections he may have requested, has obtained and qualified for any necessary financing, and the examination of the title has been completed and is acceptable to the purchaser, the transaction is ready to close. Closing of a residential transaction typically will occur at a title company, although it is not unusual for the closing to be at the offices of the lending institution, real estate broker, or attorney.
Prior to closing, the closing documents will have been prepared and should be carefully reviewed by purchaser's attorney. The closing documents generally consist of the following categories:
Documents pertaining to the title, such as the deed conveying the property and any releases of mortgages or other liens that may be required by the purchase agreement or title insurance policy.
The documents pertaining to the financing such as a real estate contract, mortgage note, mortgage or trust indenture.
The closing statements which contain an itemization of the closing costs, to whom they are charged and the various portions and disbursements made in connection with the closing.
The closing costs vary from transaction to transaction, and although the parties may agree to allocate the closing costs in any manner they wish, there are certain allocations that have become customary. The realtor, attorney or title insurer will be familiar with the various closing costs involved in your transaction and their customary allocation.
Housing discrimination. Under Montana law, housing discrimination occurs when prospective purchasers are prevented from buying the home of their choice because of their race, color, national origin, sex, age, religion, physical or mental handicap, marital status or the presence of children in the family.
If you think you have been denied a loan or a home purchase for one of these reasons, call the Montana Human Rights Bureau, 1-800-542-0807, to file a complaint and learn more about your rights under Montana's fair housing laws.
Last updated January 2003
This information is intended to inform you about Montana law generally. It is not intended as advice. You are encouraged to speak to an attorney regarding the specifics of your situation.
Lawyer Referral & Information Service. If you need legal assistance and do not know an attorney, call the Montana Lawyer Referral & Information Service. You will be referred to a lawyer appropriate to your location and problem. Call 406-449-6577.
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