Buying a House in Michigan

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 Michigan, real estate agents may represent sellers, buyers, or may act as dual agents. Real estate agents have a "fiduciary duty" to the party that they are representing, in this case, the buyer. As a fiduciary, a real estate broker is held by law to owe specific duties to the party he is representing, in addition to duties or obligations stated in a listing agreement, an agency agreement, buyer representation agreement, or other contract of employment.

You have the right, upon your first contact with a real estate agent, to know what that agent's relationship is to the seller of the home. The specific fiduciary duties of a seller's agent include:

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

Michigan law requires that sellers provide the buyer with a Seller's Disclosure Statement. This document provides the buyer with information about the condition of the property to the best of the seller's knowledge. It is not a warranty as to the condition of the property.

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 materially affect the value or desirability of the property.

In houses built prior to 1978, the seller is to provide notice that if lead based paint exists, it may present a danger, provide a lead-based paint disclosure form and provide information on hazards from inspections in the sellers possession.

Purchase Agreements

When you find a house you would like to buy, you will put together a written offer to purchase the home, sometimes called a "sales and purchase agreement," "contract for purchase," "agreement to sell," "sales agreement" or "purchase agreement." The purchase and sale agreement should include the following information:

• 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
• Lead paint disclosure

The transactions involved in purchasing a home give rise to a number of legal question that a Michigan 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. You can make your offer contingent on inspection.

Most municipalities in Michigan do not require a property inspection prior to the sale of residential property. You should find a competent private building inspector and pest inspector to inspect the property and advise you as to its condition and as to the presence of any wood boring insects.

An inspection should include an examination of the overall home construction and condition, wood damage, presence of lead (disclosure required on all homes built before 1978), disclosure of known elevated levels of radon, environmental hazards (presence of any substance in building material, soil, water or air that poses a health risk) and condition of soil.

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 issues with the property's legal title you'll need to understand.

In Michigan, 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 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. Liens are either general or specific in nature. A lien encumbers property, as long as it exists and has been recorded in the public records. You'll want to be sure that the liens that should be paid by the seller are taken care of during the closing of your sale.

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

• Mortgages
• Construction or mechanic's lien
• Judgment liens
• Unpaid taxes
• Unpaid municipal utilities (water and sewer)
• Past due support
• Lien on divorced couple's property to be paid at time of sale

Closing Costs

"Closing costs" are those costs that include the mortgage broker's fee, discount points, appraisal and title search fees, insurance charges, survey fees and other charges associated with the legal transfer of the property. These costs typically amount to between 2% and 3% of the mortgage amount.

In Michigan, you may need to pay for the following closing costs at the time you purchase your home:

• Loan discount points
• Loan origination fee
• Underwriting fee
• Processing fee
• Administrative fee
• Appraisal fee
• Credit report
• Tax service
• Flood certification
• 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 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. The mortgage is a separate contract, or security instrument, and in it, you name your house as the collateral for the loan. Under the terms of the mortgage, if you default, or fail to make payments on your loan, the lender can foreclose on the mortgage and have your house sold to pay off your loan. It's a good idea to shop around and get the best possible deal, as mortgage terms can vary among lenders.

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 the 1998 federal law, lenders are required to allow you to drop your PMI once you have 20% equity in your home.