Buying a House in Pennsylvania

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 Pennsylvania, real estate agents may act as a buyer's agent, a seller's agent, or as a dual agent, representing both the buyer and the seller in a sales transaction. Under state law, real estate agents must provide you with a written notice that details the possible agency relationship options available to you, and informs you that until you select an agency relationship, the real estate agent is not legally representing you.

The real estate agent must give the notice to you at your first meeting to discuss buying or selling real estate, and there is an oral disclosure for the agent to use if your first contact is over the phone. Even if you have not entered into a written agency agreement, a real estate agent providing you with service owes you certain duties, including:

• Exercise of reasonable skill and care
• To deal with you honestly and in good faith
• To present offers, counteroffers, notices, and communications about a sale to you within a reasonable amount of time
• Disclosure of conflicts of interest and financial interest in services related to the sale, such as insurance, financing, or inspection
• Accounting for deposit and escrow funds
• Keeping you informed about the progress of the sales transaction and assisting with tasks needed to close the sale

If you enter into a written agreement for the real estate agent to act as your buyer's agent, he will still owe you the additional duties of:

• Loyalty, by acting in your best interest
• Confidentiality
• Making a continuous and good faith effort to find a property for you to buy
• Disclosure to the other parties to the transaction that he or she is representing you in the sale as a buyer's agent

Under the Pennsylvania Real Estate Seller Disclosure Act, a seller who intends to transfer any interest in real property must disclose to the buyer any material defects with the property by completing all applicable items in a property disclosure statement and must deliver a copy of the statement to the buyer before a sales contract is signed.

A seller must disclose apparent defects and material defects, which are problems affecting the property's value, or which pose an unreasonable risk to people on the property, including any property damage, malfunctions of major systems and environmental hazards affecting the condition of a home, not readily visible to the buyer. The duty to disclose known material facts is based on a real estate broker's duty to treat all persons honestly.

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'd like to buy in Pennsylvania, you'll put together and sign a purchase and sale agreement, which may also be called an "earnest money agreement," "residential purchase agreement," "purchase agreement," "purchase contract," or an "agreement of sale."

An agreement of sale contains all the details of the offer to purchase a piece of property. An agreement of sale is binding only after the document has been agreed to and signed by the buyer and seller. Often in the purchase of real estate, there are a number of offers and counter offers until an agreement is reached.

Items and conditions that are often included in the agreement of sale include:

• Description, legal and common street address, of the property
• Purchase price
• Earnest money
• Response time to accept the offer
• Obtaining clear title to the property
• Features and fixtures which are to remain
• Remedies on breach of the contract
• Financing
• Certification that the property is free of termites
• Mechanical inspection
• Radon inspection
• Lead paint inspection
• Certification that Urea Formaldehyde Foam Insulation (UFFI) is not present in the home
• Inspection and certification that sewer system is operating properly if on-site sewer (septic system or cesspool)
• Certification of the potability of the water if on-site well
• Binder of insurance
• Title insurance
• Closing date

The transactions involved in purchasing a home give rise to a number of legal question that a Pennsylvania 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. The purchaser has a duty to conduct a reasonably diligent inspection and inquiry of the property he or she intends to purchase. A professional inspection will allow you to determine the condition of all mechanical and structural components of a home. You can make your offer contingent on inspection.

An inspection should determine the condition of the plumbing, heating, cooling and electrical systems. The structure should also be examined to assure it is sound and to determine the condition of the roof, attic, siding, windows, doors, visible insulation, walls, ceilings, floors, windows, foundation, basement, landscaping and visible structure.

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

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. Most purchase agreements are conditioned upon a title search that guarantees that there are no liens on the property. If someone else has a claim to the property, the seller's title to it is not "clear." You are not obligated to complete the purchase in that case. Therefore, the title should be examined to determine whether there are any liens, encumbrances or other potential clouds (problems) on the title prior to settlement of the sale.

In Pennsylvania, for example, an implied easement may be present where there has been a prior grant of an easement in a valid document that is too ambiguous to create an express easement. 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 an easement is reasonably necessary for the beneficial use or enjoyment of the part granted or reserved.

Your property may also be subject to a "lien," which is a charge on the property to satisfy a debt or other obligation that has been recorded in the public records and is owed by the current owner of the property.

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

• Mechanic's lien
• Construction lien
• Tax liens
• Unpaid federal and state tax lien
• Unpaid child support
• In a divorce case, the court may award one spouse ownership of the marital home but grant the other spouse a lien on the property

Closing Costs

Your mortgage lender is required to supply you with a Good Faith Estimate of all your closing costs within three business days of your application for a loan. In addition, a statement of your actual costs should be given to you at or before settlement. Within the same three days, the lender is required, under the Truth in Lending Act, to provide you with a disclosure estimating the costs of the loan you have applied for, including your total finance charge and the Annual Percentage Rate (APR).

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

• Title search
• Title insurance
• Escrow fees
• City, county and state transfer taxes
• Recordation fees
• Prepaid property taxes
• Appraisal fee
• Processing fee
• Credit report
• Loan documentation fees
• Hazard insurance
• Interest prepayments
• Lender's inspection fees
• Processing fee
• Origination fees and discount points
• Mortgage insurance
• Homeowners and hazard insurance
• Home inspection fee
• Survey of property
• PMI Insurance
• Lender's attorney fees
• Down Payment

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 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; this is your loan. The vast majority of home loans are secured with a mortgage. A mortgage makes the home itself the security or collateral for the loan. The buyer receives the deed from the seller, and so becomes the legal owner, but the buyer gives the lender the right to seek foreclosure, take possession of the house and to sell it, in the event the buyer defaults on the loan.

There are several types of available mortgage options. It's a good idea to shop around and get the best possible deal because your choice of lender and type of loan will influence not only your settlement costs, but also the monthly cost of your mortgage loan.

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 does not bring enough money to pay off the mortgage plus the cost 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. It also requires loan servicers to send annual disclosures to all mortgage borrowers about PMI and how to initiate early cancellation. You can apply for early termination or cancellation of your PMI insurance if you have at least 20% equity in your home.