Buying a House in Nevada

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 Nevada, real estate agents may represent the seller or the buyer, and they must disclose the existence of the agency relationships to the parties in a real estate sales transaction. Nevada real estate agents have what's called a "fiduciary duty" to the party they are legally representing, in this case, the buyer. This means that the agents are held by law to owe specific duties to the buyer. In addition to duties or obligations that are stated in an agency agreement, a brokerage agreement or other contract, a fiduciary's duties include:

• Good faith
• Obedience
• Confidentiality
• Reasonable 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 Nevada law, the seller of residential real property must disclose any and all known conditions and aspects of the property that materially affect the value (meaning that the defect or condition is so substantial that it might affect your decision to buy the property or the price you would pay) or use of the property in an adverse manner on a seller's real property disclosure form.

The 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 or electrical system problems
• Property drainage problems
• Foundation instabilities or cracks or structural problems
• Problems with title to the property
• Other environmental hazards, including asbestos, radon gas or underground fuel storage tanks
• Previous or current fungus or mold
• 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 agreement, which is also called a purchase and sale agreement or "contract of sale" in Nevada. The contract of sale should contain 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
• Date of settlement and possession
• Statement of the settlement costs
• Provision as to who bears the risk of loss if the property should be damaged prior to settlement
• Liens on the property

An important thing to remember is that you should consult your Nevada 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.

The following areas should be inspected:

• Structure
• Grounds
• Foundation
• Roof
• Pools and Spas
• Interior walls, ceilings and floors
• Exterior walls
• Heating system
• Air conditioning system
• Plumbing
• Electrical systems
• Kitchen
• Attic and ventilation
• Sprinklers

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 Nevada, 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 Nevada, liens on a piece of property may include:

• Deeds of trust
• Construction or mechanics' liens
• Judgment liens
• Tax liens

Closing Costs

In Nevada, typical buyer charges-called "closing costs"- paid at the time that you purchase your home are:

• Down payment
• Loan fees (points, application fee and credit report)
• Prepaid interest
• Inspection fees
• Appraisal
• Mortgage insurance
• Hazard insurance
• Title insurance
• Documentary stamps on the note

Your fees will vary according to several factors, including the type of loan that you applied for and the terms of the purchase agreement. Also, some of your closing costs may be paid in advance.

Typical seller closing costs are:

• Paying remaining balance on original loan
• Broker's commission
• Transfer taxes
• Documentary stamps on the deed
• Title insurance
• Property taxes (prorated)

Many times buyers and sellers may negotiate who pays which costs as part of the final terms of the purchase and sale agreement. Negotiations may include both major and minor fees.

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. To learn more about RESPA visit the Real Estate Settlement Procedures Act Web site.

Deed 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 Nevada, the document you sign as a security interest in your house, that is, making your house the collateral for the loan, is called a deed of trust. A mortgage is similar to a deed of trust, in that it also creates a security interest in a home.

Unlike most mortgages, deeds of trust do not require judicial foreclosure. This means a lender must file a lawsuit and get a foreclosure judgment before a house can be sold to pay off a loan if a borrower doesn't make his payments. Deeds of trust are used in place of mortgages and are favored by lenders because a deed of trust also 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 the property 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 much 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 and the foreclosure costs. 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.