Buying a House in Alabama |
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Buying a house is one of the most important legal transactions you'll ever undertake. It's important to know your legal rights and understand the process.
Working With a Real Estate Agent
In Alabama, real estate agents may enter into a contract to act as a seller's agent, a buyer's agent, or a dual agent, who represents both the buyer and the seller in a sale. Real estate agents have what's called a "fiduciary duty" to the party who they are representing, in this case, the buyer, and they are held by law to owe specific duties to that person. In addition to duties or obligations that are stated in a brokerage agreement, listing agreement, or other contract, a fiduciary's duties include:
- To provide services honestly and in good faith
- To exercise reasonable care and skill
- To keep confidential any information gained in confidence, unless disclosure is required by law or duty to a client, the information becomes public knowledge or disclosure is authorized in writing by the buyer
- Present all written offers promptly to the seller
- Answer your questions completely and accurately
You may want to hire a "buyer's agent," which is someone that will act on your behalf. The sales commission is then split between the seller's and buyer's agent.
When selling a house, disclosure of all important facts actually known to the seller is critical, even though it may impact on the ability to complete the sales transaction or on the ultimate sales price of the house.
A seller should disclose the following potential house defects:
- Plumbing and sewage problems
- Water leakage of any type, including in basements
- Termites or other insect infestations
- Roof defects
- Heating or air conditioning system problems
- Property drainage problems
- Foundation instabilities or cracks
- Problems with title to the property
- Lead paint (required under the federal Residential Lead-Based Paint Hazard Reduction Act of 1992
Purchase Agreements
When you find a house you'd like to buy, you'll put together and sign a purchase and sale agreement, which contains all of the terms of the sale, including the following:
- The names and addresses of the sellers and purchasers
- The purchase price down payment
- Arrangements for financing
- The legal description of the property
- A provision that title to the property shall be good and marketable of record, subject to reasonable easements
- The condition of the property at the time of sale
- Date of settlement and possession
- Statement of the settlement costs
- Provision as to who bears the risk of loss if the property should be damaged prior to settlement
- Liens on the property
An important thing to remember is that you should consult your Alabama real estate attorney before you sign the contract. The real estate transactions involved in purchasing a home give rise to a number of legal questions that a lawyer with a real estate background and experience is best equipped to answer.
Inspection
It's always a good idea to hire an independent professional home inspection service before you buy a house. A home inspection is a visual examination of some combination of the structural, mechanical, electrical and plumbing systems that is designed to identify material or substantial defects in those systems and components. You can make your offer contingent on inspection.
As a buyer, you may prefer to pay for a home inspection rather than having the seller pay so that you know that the inspector is working for you. In Alabama, an inspection should determine the condition of the plumbing, heating, cooling and electrical systems. The structure of the home should also be examined to assure it is sound and to determine the condition of the roof, siding, windows and doors. In addition, you will want to make sure that the lot is graded away from the house so that water does not drain toward the house and into any basement.
Legal Title Issues
When a home is purchased, title insurance is also purchased. Based upon a search of public records, a title search brings attention to any known property title problems before the closing takes place. It also insures against loss due to certain title defects that didn't turn up during the title search. Your real estate lawyer or title company will investigate the legal title of the property you want to buy, and may find issues you'll need to understand.
In Alabama, for example, an implied easement means any unwritten easement or right-of-way on private property that is required to provide utility or other services by means of underground facilities on the property of the owner who requested the services.
The property you're interested in may also be subject to a "lien," which is a charge on the property to satisfy a debt or other obligation owed by the current owner of the property. A lien encumbers property for as long as it exists and has been recorded in the public records.
In Alabama, liens on a piece of property may include:
- Federal and state tax liens
- Mechanics' liens
- Mortgages
Closing Costs
In Alabama, you can expect to pay for the following charges - called "closing costs"-at the time you purchase your home:
- Discount points
- Appraisal fee
- Credit report fee
- Lender's inspection fee
- Mortgage insurance application fee
- Assumption fee
- Mortgage broker fee
- Tax service fee
- Document preparation fee
- Underwriting fee to mortgage lender
- Accrued interest
- Mortgage insurance premium
- Hazard insurance premium
- Flood insurance
- Escrow account deposits
- Title charges
- Recording fee
- Surveyor's fee
- Pest and other inspections
The seller usually pays the following closing costs:
- Real estate broker's sales commission
- Loan origination fee
RESPA
The US Department of Housing and Urban Development's (HUD) Federal Housing Administration (FHA) administers several regulatory programs to ensure equity and efficiency in the sale of housing. One of these programs, under the Real Estate Settlement Procedures Act (RESPA), applies to almost all mortgage loans and mortgage companies, not just FHA-insured mortgages.
RESPA protects consumers by requiring a series of disclosures that prevent unethical practices by mortgage companies and that provide consumers with the information to choose the real estate settlement services most suited to their needs. RESPA helps consumers avoid surprises, like an unexpected fee that appears in your closing documents. The disclosures take place at various times throughout the settlement process. Certain disclosures are required at the time of loan application, before closing occurs, at closing, and after closing.
Mortgages
At the time of purchase, you'll sign a promissory note that legally obligates you to pay back the money you borrowed to buy your house. A promissory note is, in effect, an "IOU." You promise to pay your lender the full amount, payable in equal monthly installments, at the interest rate previously agreed upon. Your lender will keep the original until you completely pay off the loan.
In Alabama, the document you sign as a security interest in your house is called a mortgage. A mortgage is the instrument (a contract), usually held by the lender, by which the property is named as collateral to secure the payment of a debt or obligation. Because mortgage terms and rates may vary, it's a good idea to shop around and get the best possible deal.
Private Mortgage Insurance
If you put down less than 20% on a home mortgage, lenders often require you to have "private mortgage insurance" (PMI). PMI is a type of insurance that protects the lender in the event the borrower defaults on the loan, which is a concern if you don't have much equity in your home. PMI covers the gap if a foreclosure sale of your home does not bring enough money to pay off your mortgage plus the cost of the foreclosure proceedings. PMI is a cost added to the monthly payment of many conventional loans. The loan servicer collects these monthly premiums and pays them to a private mortgage insurance company.
The Homeowners Protection Act of 1998 (HPA) establishes rules for automatic termination and borrower cancellation of PMI on home mortgages. Under HPA, you have the right to request cancellation of PMI when you pay down your mortgage to the point that it equals 80% of the original purchase price or appraised value.