Buying a House in Maryland

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 Maryland, real estate agents can act in several possible roles in a real estate transaction and might represent a seller, a buyer or act as a dual agent, representing both parties in a sale. In Maryland, real estate agents have a "fiduciary duty" which means that they 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 or other contract, a fiduciary's duties include:

• Loyalty
• Honesty
• Reasonable skill, care and diligence
• Disclosure
• Confidentiality
• Accounting

Maryland requires that you receive an agency disclosure form from the real estate agent you are working with. It informs you whether the agent has duties to the seller, the buyer or both. 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. In Maryland, there is a seller's disclosure form, on which a seller makes a disclosure of all known problems in the home or makes a disclaimer of any problems.

The seller's disclosure form should disclose all defects or information that the seller has actual knowledge about in relation to the following:

• Water and sewer systems
• Insulation
• Structural systems
• Plumbing, electrical, heating and air-conditioning systems
• Infestation of wood-destroying insects
• Land use matters
• Hazardous or regulated materials
• Lead paint (required under the federal Residential Lead-Based Paint Hazard Reduction Act of 1992 for homes built prior to 1978)
• Any other known material defects or a written residential property disclaimer statement

Purchase Agreements

When you find a house you'd like to buy, you'll put together and sign a purchase agreement, which is called a purchase and sale agreement in Maryland. The purchase and sale agreement obligates you to buy the home, at the price and on the conditions stated in the contract.

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

• Identification of the buyer and seller, including addresses
• Description of the property
• The amounts of the purchase price to be paid and on what schedule
• What contingencies there are in the contract
• What appliances and fixtures are included and excluded
• What inspections are authorized and what happens if problems are found by an inspector
• Who is responsible for closing costs
• If there is a homeowners' association for the community and the amount of any fees
• Arrangements for financing
• 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
• Provision as to who bears the risk of loss if the property should be damaged prior to settlement

An important thing to remember is that you should consult your Maryland 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 Maryland, 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 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 Maryland, liens on a piece of property may include:

• Mortgages
• Mechanics' liens
• Judgment liens
• Tax liens

Closing Costs

In Maryland, you can expect the following charges-called "closing costs" - at the time you purchase your home:

• Down payment
• Private mortgage insurance
• 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
• Transfer taxes
• Title search
• Title insurance
• Recording fee
• Inspection fees
• Survey of property
• Hazard insurance reserve
• Prepaid interest
• Tax impounds
• Escrow fee
• Lender attorney fees

Many times buyers and sellers may negotiate who pays which costs as part of the final terms of the purchase and sale 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. To learn more about RESPA visit the Real Estate Settlement Procedures Act Web site.

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 Maryland, the document you sign as a security interest in your house is called a mortgage or deed of trust.

Both deeds of trust with private power of sale and mortgages are used as security instruments. A mortgage is the security instrument, usually held by the lender, by which the property is named as collateral to secure the payment of your loan. Mortgages generally require judicial foreclosure, which means that the lender must go to court and get a foreclosure judgment before your house can be sold to pay off your loan. Deeds of trust do not require the lender to get a foreclosure judgment before selling your house; the title to your property is placed in the name of a trustee, usually a title insurance or escrow company, and under the power of sale terms in the deed of trust, your house can be sold by the trustee if you don't make your loan payments. Because financing 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.