Buying a House in the District of Columbia

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 the District of Columbia, real estate agents may represent sellers, buyers, or act as a dual agent, representing both parties in a home sale transaction. A real estate agent is required to disclose any broker relationship he has with another party in the transaction upon having a substantive discussion about a specific property with a prospective buyer or seller. Real estate agents have what's called a "fiduciary duty" to the party who they are representing in a transaction. This means that the agents are held by law to owe specific duties to that person. In addition to duties or obligations that are stated in an agency agreement, a listing agreement or other contract, a fiduciary's duties include:

• Loyalty
• Obedience
• Disclosure
• Confidentiality
• Reasonable care
• Diligence
• Accounting

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. Under District of Columbia law, the seller must complete a Seller's Disclosure Statement and give it to the buyer either before at the time a purchase agreement is signed.

A seller should disclose the following potential house defects:

• Leaks in the roof
• Wall defects
• Floor defects
• Foundation defects
• Window defects
• Evidence of water in the basement
• Electrical system problems
• Any history of infestation, including termites, carpenter ants and rodents
• Any environmental 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 contains all of the terms of the sale, including the following:

• The names and addresses of the sellers and purchasers
• The purchase price and 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
• Closing date and possession
• Statement of the closing costs
• Provision as to who bears the risk of loss if the property should be damaged prior to settlement
• Any liens on the property

An important thing to remember is that you should consult your District of Columbia 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 defects in those systems and components. You can make your offer contingent on inspection.

Every inspection should include an evaluation of at least the following:

• Foundation
• Plumbing and electrical systems
• Doors
• Ceilings, walls and floors
• Roof
• Hazardous materials concerns
• Heating and air conditioning systems
• Common areas (in condominiums)
• Insulation
• Ventilation

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 the District of Columbia, for example, an implied easement exists where a person grants lands to which there is no accessible right-of-way except over her or his land or retains land that is inaccessible except over the land which the person conveys. In such instances a right-of-way is presumed to have been granted or reserved. Such an implied grant or easement in lands or estates exists where there is no other reasonable and practicable accessing the property, and it is reasonably necessary for the beneficial use or enjoyment of the part granted or reserved.

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 the District of Columbia, liens on a piece of property may include:

• Deeds of trust
• Land sale contracts
• Involuntary liens (includes mechanics' liens, liens for unpaid taxes and liens filed by creditors holding judgments against the owner)

Closing Costs

"Closing costs" are expenses incurred by buyers and sellers in transferring ownership of property. In the District of Columbia, you can expect to pay some or all of the following closing costs at the time you purchase your home:

• The down payment
• Points
• Administration fee
• Application fee
• Document preparation fee
• Funding fee
• Mortgage broker or lender fee
• Processing charge
• Tax service
• Underwriting
• Wire transfer
• Appraisal
• Attorney or settlement fees
• Credit report
• Flood certification
• Pest and other inspection fees
• Postage/courier
• Survey fees
• Title insurance
• Title work fee
• Recording fee
• City/county/state tax stamps/intangible tax

Many times buyers and sellers may negotiate who pays which costs as part of the final terms of the purchase agreement.

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.

Deeds of Trust

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 the District of Columbia, the document you sign as a security interest in your house is called a deed of trust, which gives the lender the right to foreclose on your property without taking you to court first, which saves the lender time and money. A deed of trust is similar to a mortgage contract except that a deed of trust involves a third party called a trustee, usually a title insurance company, which acts on behalf of the lender. When you sign a deed of trust, you are in effect giving the trustee ownership of the property, but you hold on to the right to use it and to live there. The lender or trustee holds the original deed of trust until you repay the loan on your home.

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 enough equity in your home. PMI covers the gap if the sale of your home in a foreclosure sale might not bring enough to pay off the mortgage plus the costs 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.