Buying a House in Illinois

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 Illinois, real estate agents are considered to be representing the consumer they are working with as a designated agent for the consumer unless there is a written agreement providing for a different relationship, or the agent is only performing routine tasks for the consumer in connection to a real estate sale. In Illinois, a real estate agent has a "fiduciary duty" to the consumer he represents, and if representing the home buyer, the agent is held by law to owe specific duties to the buyer, in addition to any duties that are stated in a brokerage agreement between the agent and the buyer. A buyer's agent works with loyalty and fidelity as the buyer's advocate and negotiator. The specific duties include:

• Loyalty
• Obedience
• Disclosure
• Confidentiality
• Reasonable Care and Diligence
• Accounting

A buyer's agent works to negotiate the lowest purchase price and best terms for the buyer. This type of agent serves the buyer with undivided loyalty, confidentiality, and full disclosure. For instance, the buyer's agent would know the highest price that the buyer would be willing to pay for a home, but the agent may not disclose that information to the seller.

A dual agent may work for both the buyer and the seller with written, informed consent of both parties. This type of agent has fiduciary obligations to both parties. The agent can only disclose to one party what the other party agrees to reveal.

In Illinois, the Residential Real Property Disclosure Act requires that when a seller signs the standard purchase agreement, he or she must attach a disclosure document. This document must disclose to the buyer any material or important defects, which are known hazards or problems with the structure or the heating, plumbing, mechanical, or electrical system. Problems listed on this statement are not required to be repaired but the buyer may want to either request that the seller repair these items or offer a price break.

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
• Neighbor issues that aren't obvious
• Unsafe concentrations of radon or asbestos on the property, in addition to providing the buyer with the state-approved radon disclosure pamphlet under the Illinois Radon Awareness Act
• 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 is another name for a sales contract. To be enforceable, the purchase agreement must be in writing and it must constitute an offer and an acceptance and consideration must pass between the purchaser and the seller. All of the current owners of the home, for example, both spouses if the home is owned by a married couple, must sign the contract.

The purchase agreement should contain all of the terms of the transaction, including the following:

• The names and addresses of the sellers and purchasers
• The purchase price and how it is to be paid, including the amount of any down payment
• Arrangements for financing, including the right of the purchaser to terminate the contract if he cannot secure the specific financing set forth in the contract
• 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 that the terms of the contract, particularly any warranties as to the condition of the property, should survive the execution and delivery of the deed.
• Provision as to who bears the risk of loss if the property should be damaged prior to settlement.
• The names and commissions due the sales agents
• Liens on the property

The transactions involved in purchasing a home give rise to a number of legal question that an Illinois 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 mechanical, electrical or plumbing systems of structural and essential components of a residential dwelling designed to identify material defects in those systems and components. You can make your offer contingent on inspection.

Illinois law creates the Illinois Home Inspector License Act and establishes a Home Inspector Advisory Board within the Office of Banks and Real Estate (OBRE), which is charged with regulating home inspectors.

An inspection generally covers the following:

• Exterior and Roof
• Structure
• Electrical
• Heating
• Air Conditioning and Heat Pumps
• Plumbing
• Cooling
• Insulation and Ventilation
• Interior

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 you'll need to understand.

In Illinois, for example, an implied easement may be present when a use of property continues for a certain period of time. Or, if a neighbor has been crossing the corner of a property for years, the neighbor may have acquired a prescriptive easement to continue to cross the property in the same manner. Under Illinois law, two types of implied easements are recognized: the easement by necessity and the easement implied by a preexisting use. Both types of easements arise from an inference of the intention of the parties to a conveyance of land.

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 that has been recorded in the public records. A lien is a charge against property that provides security for a debt or obligation of the property owner. 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. One of the most common liens is the mechanics lien. A mechanic's lien arises when someone does work on a house and furnishes labor or materials to improve it.

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

• Construction liens
• Tax liens
• Mechanics lien
• Unpaid federal and state tax liens
• Unpaid child support

Closing Costs

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

• Application Deposit
• Broker's Commission
• Attorney Fees
• Transfer Taxes
• Title Insurance
• Survey
• Real Estate Taxes
• Points
• Private Mortgage Insurance
• Homeowner's Hazard Insurance
• Flood Insurance

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; this is the loan for the purchase. The mortgage is a second contract, which which names your house as collateral or security for the repayment of the loan. Essentially this means that the lender can foreclose on your house and have it sold if you fail to make your mortgage or loan payments. It's a good idea to shop around and get the best possible deal because mortgage terms, such as the interest rate you pay, will vary from lender to lender.

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.

The HPA and the The Private Mortgage Insurance Act gives home buyers a number of rights. First, you must be given a written statement explaining that you have PMI and when you'll be allowed to cancel it. The law also states that the lender must allow you to cancel PMI when your equity is 22% or more and that you can ask for permission for cancellation once you've reached the 20% equity level.