Buying a House in California

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 California, real estate agents may act as a seller's agent, a buyer's agent or a dual agent who represents both parties to a sale, and have what's called a "fiduciary duty" to the party who they are representing, in this case, the buyer. The agent must act with utmost care, integrity, honesty, and loyalty in dealings with the buyer. It also means the diligent exercise of reasonable skill and care in performance of the agent's duties. Additionally, the agent has a duty to disclose to the buyer all facts known to the agent substantially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the parties.

California law requires that the seller provide the buyer with a completed " Real Estate Transfer Disclosure Statement." This is a pre-printed form that lists many features or conditions about the home, the land, and the area where the home is located. The seller must list on this form any possible problems he or she knows about that might affect your willingness to purchase the home. This statement must disclose all known structural defects, as well as problems with or information about the heating, plumbing, mechanical, and electrical systems.

The seller also must include potential problems of which he or she is aware such as easements, environmental hazards, landfills, flooding, zoning violations, or noise problems. It is also the duty of the seller's agent to conduct a visual inspection of the home and report all facts that substantially affect the value or desirability of the property.

In addition, the seller must also complete a single page disclosure form found in "The Homeowner's Guide to Earthquake Safety." In this document, sellers disclose anything they know about the earthquake readiness of their property.

When selling a condominium in California, the seller must give the buyer copies of the homeowners' association bylaws, financial statements, and other documents. The seller also is obligated to disclose any unpaid assessments.

Under California law, a seller must disclose the following:

• Items on the property (appliances, water heater, burglar alarm, hot tub, etc.)
• Operating condition of certain items
• Defects in walls, ceilings, floors, sidewalks, etc.
• Existence of environmental hazards, easements, construction without permit, zoning violations, flooding problems, earthquake damage, deed restrictions, and neighborhood noise problems or other nuisances
• Some property owners are required to disclose that the property is near an airport
• Depending on the age of the property you are purchasing, the seller may be required to disclose whether they have knowledge of any lead based paint in or on the property
• If a death occurs on a property within three years of a sale, and the circumstances of that death are material (it was a gruesome or offensive death, or affected the reputation of the property), it must be disclosed

These disclosures, while required, are not part of the contract between the buyer and the seller and are not warranties by the seller. Just because problems are listed on this statement does not mean that the seller must repair the problems, but the buyer may request repairs or a price break because of the problems.

Purchase Agreements

When you find a house you'd like to buy, you'll put together and sign a purchase and sale agreement, which is a contract that contains all of the terms of the sale, including the following:

• Parties
• Property description
• Conveyance of property
• Purchase price
• Permanently attached fixtures
• Deposit amount
• Settlement date and costs
• Transfer and recording charges
• Restrictions, easements or limitations
• Financing
• Buyer's duties and responsibilities
• Seller's duties and responsibilities
• Condition of property
• Default provision
• Inclusions and exclusions
• Property insurance and risk of loss
• Attorney's fees
• Termite inspection
• Radon gas disclosure
• Environmental inspection
• Wetland's notice
• Lead paint disclosure

The real estate transactions involved in purchasing a home give rise to a number of legal question that a California real estate attorney with 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 defects in those systems and components. You can make your offer contingent on inspection.

The state of California has specific laws on what house inspectors can and should do during an inspection. This includes a general home inspection for structural defects as well as an evaluation of the condition of the roof, foundation, drainage, plumbing, heating system, central air-conditioning system, visible insulation, walls, windows, and doors; a pest inspection to see if the house has been infested with termites or other pests and an asbestos inspection.

Legal Title Issues

Your real estate lawyer or title company will investigate the legal title of the property you want to buy, and may find legal title issues you'll need to understand.

In California, for example, an implied easement may be present where there is an easement by necessity. Generally, whenever a transfer occurs that results in a "landlocked" parcel of land and there is no method of access whatsoever, except over the land retained by the seller, or over the land of a stranger, then the necessity is recognized. Another implied easement is recognized when land in one ownership is divided and, at the time of division, one portion is being used for the benefit of the other portion.

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, as long as it exists and has been recorded in the public records.

The lien holder does not own the property. Some liens are voluntary, such as when the owner of property takes out a mortgage. Other liens may be imposed. For example, a lien may be imposed on property for nonpayment of taxes. One of the most common liens is the mechanic's lien. A mechanics lien arises when someone furnishes labor or materials to improve a piece of property, but is not paid. The worker or supplier may file a notice of lien with the county recorder and the property owner and collect the amount owed from a subsequent sale of the property.

In California, liens on a piece of property may include:

• Mortgage
• Mechanic's lien
• Judgment liens
• Unpaid taxes
• Unpaid municipal utilities (water and sewer)
• Lien on divorced couple's property to be paid at time of sale

Closing Costs

In California, you can expect to pay for the following charges - called "closing costs"-at the time you purchase your home:

• Loan discount points
• Loan origination fee
• Underwriting fee
• Processing fee
• Administration fee
• Appraisal fee
• Credit report fee
• Tax service fee
• Flood certification fee
• Document preparation fee
• Settlement or closing fee
• Title insurance
• Recording 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.

It's a good idea to shop around and get the best possible deal on the financing for your purchase because terms offered by lenders can vary greatly.

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. It also requires loan servicers to send annual disclosures to all mortgage borrowers about PMI and how to initiate early cancellation.

You can apply for early termination or cancellation of your PMI insurance if you have at least 20% equity in your home. You can find more information through the California Department of Consumer Affairs.