The legal process begins when you sign an offer which is accepted by the seller. It is important that the terms of the offer are exactly what you want since they will eventually be part of the more comprehensive purchase and sale agreement. If a real estate broker is involved, that person will usually draft the offer. Critical provisions in an offer include the purchase price, the amount of deposit to be made (remember, the deposit could be at risk if something goes wrong), the date by which a full purchase and sale agreement is to be signed, the amount of financing to be obtained and the date the closing is to occur.
Once the offer is accepted, the attorneys for each side will negotiate the terms, and draft a purchase and sale agreement. The agreement will contain all of the terms and conditions of the sale. Although much of the language is boiler plate, there are some clauses that can be tipped in favor of one party or the other. As a buyer, you want to keep the deposit as low as possible and you want to give yourself sufficient time to secure financing.
Once the Agreement is signed, you will submit at least one application for financing. It is the buyer’s obligation to make a good faith and diligent effort to secure financing. If you change your mind about buying the property, you will not get your deposit back if you do not try to get a mortgage.
If the buyer does make a diligent effort and is unable to obtain financing, the deposit will be refunded in full.
The Agreement will contain a date by which financing must be secured. If a written commitment (verbal is not good enough) from a lender is not received on or before that date, the buyer can withdraw from the Agreement and get the deposit back or ask the seller if an extension of the contingency date can be granted. It is very important that one of these two things happen on that day. If the buyer does not have a commitment, and does not get an extension of the contingency date, they will be expected to go through with the purchase anyway and if they are unable to do so because of lack of financing, they will lose their deposit.
Once a lender has committed to provide financing, the matter will be turned over to the lender’s conveyancing attorney to have the title work done and the closing conducted (occasionally a lender will allow a buyer to use their own attorney for this). The attorney will have a title examination done to be sure there are no encumbrances on the title of the property. A plot plan will be done to be sure the property complies with zoning requirements and that it is not in a flood zone. A municipal lien certificate will be obtained from the city or town in which the property is located to be sure all estate taxes and betterment assessments have been paid.
When all of this is done and the agreed closing date approaches, the closing attorney will prepare a disclosure statement which will reflect all of the charges to be assessed to the buyer, such as recording fees, escrowed amounts, title insurance premium and legal fees as well as all credits to which the buyer is entitled such as the amount of the deposit already paid and the amount of the mortgage. Items such as real estate taxes, or in the case of condominiums, common charges, will be pro-rated as of the day of the closing. A bottom line will result which will be the amount the buyer needs at the closing.
After the closing, the lender’s attorney will record the deed, mortgage and perhaps other documents with the appropriate registry of deeds and pay any outstanding mortgage or other liabilities relating to the property.
A question often asked is whether a buyer needs their own attorney at the closing since the lender’s attorney is doing all the work. In most cases, buyers can rely on the lender’s attorney and things work out fine. Keep in mind, however, that the lender’s attorney is representing the lender, not the buyer. If it appears you have a lender’s attorney who is not attentive or is difficult to work with, or if you anticipate a problem with the seller at the closing, you should have your own attorney.
Two final considerations. The manner in which title is held can have a dramatic effect on who might eventually own the property. If title is held as “joint tenants”, if one owner dies, the other succeeds to full ownership of the property. If it is held as “tenants in common”, if one owner dies, that owner’s heirs succeed to that owner’s interest. If the property is being purchased by spouses, the preferred option is “tenants by the entirety”. This is a joint tenancy but with additional protection from creditors.
Finally, it makes sense to record a homestead declaration at the time you purchase a home. This is not a panacea against all risks to the house, but it does prohibit the house from ever being sold to satisfy a debt as long as the buyer and family are residing in it. It can’t hurt and it might help some day.