Buying a House in New Jersey

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 New Jersey, real estate agents may act as a buyer's agent, a seller's agent or they may represent both parties to a real estate transaction as a disclosed dual agent. Real estate agents have what's called a "fiduciary duty" to the party who they are representing, in this case, the buyer. The legal obligations to the buyer include reasonable care, undivided loyalty, confidentiality and full disclosure. Seller's agents often work with buyers, but do not represent the buyers. However, in working with buyers a seller's agent must act honestly.

In addition, regulations require all realtors to disclose in writing whether they represent the buyer, seller or both. The Consumer Information Statement is a form on which real estate agents advise consumers of the types of business relationships that they are permitted to engage in. The statement must be given to the buyer prior to showing the property.

Every home seller has certain duties and obligations to a buyer, including full disclosure of all known defects or defects that should have been known. Failure to disclose all known facts regarding a property constitutes fraud. Sellers of residential real estate must disclose to their potential purchasers known defects or information concerning such areas as water and sewer systems, insulation, structural systems (including roof, walls, floors, foundation and basement), plumbing, electrical, heating and air conditioning systems and the presence of radon gas.

To protect families from exposure to lead from paint, dust and soil, Congress passed the Residential Lead-Based Paint Hazard Reduction Act of 1992. Under this law, anyone selling a house that was built before 1978 must notify potential buyers of a possible lead problem.

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 called a "contract of sale" in New Jersey. A contract of sale is an agreement for the purchase and sale of real estate. This is the most important document in any real estate transaction because it establishes the respective rights and responsibilities of the purchaser and the seller.

Since the Contract of Sale is important and legally binding, New Jersey requires a three day attorney review period on contracts prepared by a real estate agent. The three day attorney review period is to protect the buyer and seller from being forever bound by a contract without them receiving the benefit of legal advice.

The contract of sale must be in writing and should include all of the terms of the transaction, including the following information:

• The parties
• Purchase price and how it is to be paid
• An adequate description of the property being sold
• The kind of deed to be delivered
• The quality of the seller's title to the property included in the sale
• The date you are to take possession
• Additional clauses relating to the property and the parties' respective responsibilities to each other

The important thing to remember is that you should consult your attorney before you sign the contract. The transactions involved in purchasing a home give rise to a number of legal questions that a New Jersey real estate attorney 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.

An inspection generally covers the following:

• Exterior and Roof
• Structure
• Electrical
• Heating
• Air Conditioning and Heat Pumps
• Plumbing
• Cooling
• Insulation and Ventilation
• Interior (walls, ceilings, floors, windows and doors)

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

You can report any problems with a home inspection service through the New Jersey Division of Consumer Affairs.

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 legal title issues you'll need to understand.

In New Jersey, 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 New Jersey, liens on a piece of property may include:

• Mortgages
• Construction or mechanic's liens
• Judgment liens
• Unpaid taxes
• Unpaid municipal utilities
• Unpaid child support liens

Closing Costs

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

• Appraisal fee
• Credit Report fee
• Miscellaneous Lender fees
• Tax service fee
• Flood determination
• Prepaid interest
• Hazard insurance
• Hazard insurance escrow
• Prepaid taxes
• Private mortgage insurance
• Title charges
• Title insurance
• Recording fees
• Survey
• Pest inspection

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.

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 New Jersey, the document you sign as a security interest in your house, that is, making your home the collateral for the loan, is called a mortgage or deed of trust. A lender's right to seek foreclosure, or to have your house sold, if you don't make your loan payments, is found under the terms of the mortgage or deed of trust.

It's a good idea to shop around and get the best possible deal on the financing for your home purchase, because the terms and interest rates 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 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.