Buying a House in New York

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 York, real estate agents may act as a buyer's agent, a seller's agent, or may represent both parties to a real estate sale as a dual agent. Real estate agents must disclose agency relationships to potential clients. Real estate agents have what's called a "fiduciary duty" to the party who they are representing, in this case, the buyer. In New York, this means that a buyer's agent has, without limitation, the following fiduciary duties to the buyer:

• Reasonable care
• Undivided loyalty
• Confidentiality
• Full disclosure
• Obedience
• Duty to account

In dealings with the buyer, a buyer's agent should exercise reasonable skill and care in performance of the agent's duties; deal honestly, fairly and in good faith; and disclose to the seller all facts known to the agent materially affecting the buyer's ability and/or willingness to perform a contract to buy the seller's property that are not inconsistent with the agent's fiduciary duties to the buyer.

Under state law, a seller must disclose to the buyer the following potential house defects:

• Drainage problems
• Heating and air conditioning problems
• Roof problems
• Termites or other pests
• Cracks or flaws in walls or foundation or other structural problems
• Leaks
• Fires
• Plumbing problems and information about the property's water source
• Sewage problems
• Dampness in the basement or attic
• Whether work was done to code
• Problems concerning title to the property
• Mandatory disclosure of the presence of known lead-based paints is required for all residential dwellings built before 1978 based on the Residential Lead-Based Paint Hazard Reduction Act of 1992

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 the contract that contains all of the terms of the sale, including the following:

• Purchase price
• Amount of mortgage
• Mortgage contingency
• Quality of title to be conveyed
• Date of possession
• Itemized list of personal property included in the sale
• Itemized list of personal property excluded from the sale
• Satisfactory building and pest inspection, and additional inspections where necessary

The transactions involved in purchasing a home give rise to a number of legal question that a New York 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.

An inspection should include a general home inspection for structural defects as well as an evaluation of the condition of the roof, foundation, drainage, plumbing, heating system, central air-conditioning system, visible insulation, walls, windows and doors; a pest inspection to see if the house has been infested with termites or other pests; and a radon inspection.

You can report any problems with a home inspection service through the New York State Consumer Protection Board.

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 issues you'll need to understand.

In New York, for example, an implied easement may be present where the use of property continues for a certain period of time. An example of an implied easement is if a neighbor has been crossing your property consistently for several years in order to get to their own property and you, as the actual owner of the property, have not challenged that use. The neighbor may have acquired a prescriptive easement to continue to cross the property in the same manner.

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.

Every State permits a person who supplies labor or materials for a construction project to claim a lien against the improved property. While some states differ in their definition of improvements and some states limit lien claims to buildings or structures, most permit the filing of a document with the local court that puts parties interested in the property on notice that the party asserting the lien has a claim.

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

• Construction or mechanic's lien
• Tax liens
• Mortgages
• Judgment Liens
• Unpaid Municipal Utilities (water and sewer)
• Lien on divorced couple's property to be paid at time of sale

Closing Costs

The charges you pay will vary among lenders, so it pays to shop around for the best combination of mortgage terms and closing costs. In New York, you may have to pay the following charges - called "closing costs" - at the time you purchase your home:

• Origination or application fees
• Credit report
• Points (each point is equal to 1% of amount borrowed)
• Document preparation fees
• Preparation of amortization schedule
• Appraisals
• Application fee
• Survey
• Mortgage insurance
• Homeowner's hazard insurance
• Lender's attorney fees
• Title search and title
• Insurance
• Home inspection fee
• Loan origination fee
• Discount points
• Prepaid interest
• Escrow account

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.

The mortgage is the security instrument or contract by which you name your house as the collateral to secure the repayment of your loan. The lender's right to foreclose on the loan and to have your house sold, to pay off the loan, if you fail to make your payments is found within the terms of the mortgage.

It's a good idea to shop around and get the best possible deal on your loan, because loan terms 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). That way, if you default on the loan, the lender will recover his money because with little equity in your home, a foreclosure sale might not bring enough money to pay off your loan plus cover the costs of the foreclosure proceedings.

The Homeowners Protection Act of 1998 (HPA) establishes rules for automatic termination and borrower cancellation of PMI on home mortgages. Many lenders will consider canceling PMI coverage, at the borrower's request, when the borrower can demonstrate the 20% equity point has been exceeded and the borrower has a good payment history.