Buying a House in North Carolina

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 North Carolina, real estate agents may represent sellers, buyers, or both parties to a real estate sales transaction as a dual agent. Real estate agents have what's called a "fiduciary duty" to the party who 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 buyer agency agreement or other contract, a fiduciary must:

• Be loyal
• Safeguard and account for funds
• Follow reasonable and lawful instructions
• Act with reasonable skill, care and diligence
• Disclose information to you

Even if the agent does not represent you, the agent must still be fair and honest and disclose to you all "material facts" that the agent knows or reasonably should know. A fact is "material" if it relates to defects or other conditions affecting the property. This does not require a seller's agent to disclose to you the minimum amount that the seller is willing to accept.

North Carolina law requires that most sellers furnish a residential property disclosure that describes the condition of all systems in the home.

A seller should disclose the following potential house defects:

• Plumbing and sewage problems
• Water leakage of any type, including in basements
• Termites or other insect infestations
• Roof defects
• Heating or air conditioning system or electrical system problems
• Property drainage problems
• Foundation instabilities or cracks or other structural problems
• Problems with title to the property
• Neighbor issues that are not obvious
• Environmental hazards such as asbestos, radon gas or underground storage tanks
• 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 and sale agreement, also called a sales contract or purchase agreement. Under state law, the home purchase agreement should include:

• The names and addresses of both buyer and seller
• The legal description of the property to be purchased (address, lot and block number)
• The mortgage amount needed to finance the house
• The deposit amount and the party who will hold it in escrow until closing

Your home purchase agreement should be drawn up or carefully reviewed by an experienced real estate attorney before you sign it. An attorney protects your interests and can save you money and problems. Make sure you understand every clause of the contract before signing.

Inspection

It's always a good idea to hire an independent professional home inspection service before you buy a house. All home inspections in North Carolina must be performed by a North Carolina-licensed home inspector. A home inspection is an objective, visual examination of a home's structure, systems and mechanical systems. The home inspector is required to observe readily visible and accessible installed systems which include: structural components, exterior, roofing, plumbing, electrical, heating, central air conditioning, interiors, built-in kitchen appliances, insulation and ventilation.

The minimum standards for home inspections in North Carolina are established by the North Carolina Licensed Home Inspector Board. Licensure is accomplished by meeting stringent requirements set by the State of North Carolina and passing a comprehensive examination. Continuing education is required each year in order to keep this license in force.

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 North Carolina 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 North Carolina, 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 North Carolina, liens on a piece of property may include:

• Mortgages
• Security interests
• Tax liens, imposed to secure payment of a tax
• Attorney's liens, against funds and documents to secure payment of fees
• Mechanic's liens, which secure payment for work done on property or land
• Judgment liens, imposed to secure payment of a judgment

Closing Costs

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

• Surveys
• Home inspections
• Down payment and lender fees
• Flood zone certification fees
• Cost to record the new deed
• Mortgage origination or application fee
• Loan discount or points
• Your share of yearly property taxes, property association dues and similar fees
• Fees for a title search and duties performed by their attorney
• Title insurance policies and hazard insurance for a year
• Funds to open lender escrow accounts for property taxes and insurance that will be paid by lender the following year

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 and Deeds 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 North Carolina, the document you sign as a security interest in your house is called a deed of trust. Another security interest you might be familiar with is a mortgage. The effect of both documents is that your house is made the collateral for your loan.

Under a deed of trust, the title to your property is placed in the name of a third party, called a trustee (usually a title insurance company), and you keep possession of the property. Under the terms of the deed of trust, the trustee has a power of sale, which allows the trustee to sell your house if you fail to make loan payments without first going to court to get a foreclosure judgment, which saves the lender time and money.

It's a good idea to shop around and get the best possible deal because terms will 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 money to pay off your loan plus cover the costs of 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. Automatic notification of cancellation only applies to loans originated after July 29, 1999. On North Carolina home loans originated before that date, the homeowners must request cancellation.