Buying a House in Hawaii

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 Hawaii, real estate agents may represent sellers, buyers, or both parties to a sale. Under state real estate commission rules, real estate agents must disclose to parties in a sale who they represent, and may not represent both parties as a dual agent without their written consent. Real estate agents have what's called a "fiduciary duty" to those whom they represent. In Hawaii, this means that the agents are held by law to owe specific duties to the person who they are representing, in this case, the buyer. 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
• Full disclosure
• Skill, care and 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 Hawaii statute a seller is required to provide you with a disclosure statement, which states all material facts, defects and conditions that would be expected to measurably affect the value of the property. The disclosure statement must be delivered to you no later than 10 days after the acceptance of a purchase contract, and you will have a chance to rescind the contract upon examination of the disclosure statement. A seller should disclose the following potential house defects:

• Plumbing and sewage problems
• Water leakage of any type, including in basements
• Termites or other 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 for homes built prior to 1978)

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 Hawaii 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

Most inspectors will charge extra for services such as radon testing, termite inspections and well or septic inspections.

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 Hawaii, 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 way of accessing the property, and an easement 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 pubic records.

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

• Mortgages
• 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 Hawaii, you can expect to pay for the following closing costs at the time you purchase your home:

• Loan origination fee
• Loan discount points
• Appraisal fee
• Prepaid interest
• Credit report fee
• Document preparation

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 when an unexpected fee 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 Hawaii, the document you sign as a security interest in your house is called a "mortgage." A mortgage is the instrument, usually held by the lender, by which the property is named as the collateral to secure the payment of a debt or obligation. Under the terms of the mortgage, the lender can seek to have your house sold in a foreclosure sale if you fail to make your loan payments. 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 might not bring enough to pay off the mortgage plus cover 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.