Buying a House in South Dakota

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 South Dakota, real estate agents may act as a buyer's agent, a seller's agent, or a limited agent, which means that the real estate agent has agency agreements with both the buyer and the seller; such a situation is possible only with both parties' consent. A real estate broker or agent can also act as a "transaction broker," which means that the agent assists with a real estate transaction, but does not have an agency relationship with either the seller or the buyer.

Under South Dakota law, at your first substantive meeting with a real estate agent, you will be given a disclosure form, which explains the various agency relationships possible with a real estate agent. The form is not a contract, and you will have to sign a buyer agency agreement in order for the real estate agent to legally represent you in the purchase of a home. Real estate agents have what's called a "fiduciary duty" to the party who they are representing, in this case, the buyer, and this means that a real estate agent owes specific duties under the law to the buyer. In addition to duties or obligations that are stated in a buyer agency agreement or other contract, a fiduciary's duties include:

• Loyalty
• Obedience
• Disclosure
• Confidentiality
• Reasonable care and diligence
• Accounting in dealings with the seller

If you enter into a buyer agency agreement, the real estate agent's commission is negotiable, and often, the commission will be paid from the seller's proceeds from the sale. However, it is possible that the seller might not agree to pay the commission from the sales proceeds, and you would be responsible for paying the agent's commission according to your buyer agency agreement.

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. In South Dakota, a seller must complete a property condition disclosure statement and deliver it to you before you make an offer to purchase the house.

A seller is required to disclose the following property conditions:

• Lot and title information
• Structural information
• Systems and utilities information
• Hazardous conditions
• Other information, including whether a death or a felony occurred on the property within the last 12 months, whether the property is located on a private road or street, and if so, what the maintenance arrangement is, information about the water supply, and what fixtures will stay with the house
• 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 "purchase agreement," which contains all of the terms of the sale, including the following:

• Names of the buyers and sellers
• Sales price
• Method of payment, including earnest money, deposits, and amount paid at closing
• Personal property staying with the property
• Description of the property
• Time period to arrange financing
• Title insurance
• Closing date and possession date
• Type of financing
• Date and time of the signatures of the buyers and sellers
• Contingencies

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

Every inspection should include an evaluation of at least the following:

• Foundation
• Plumbing and electrical systems
• Doors
• Ceilings, walls and floors
• Roof
• Hazardous materials concerns
• Heating and air conditioning systems
• Common areas (in condominiums)
• Insulation
• Ventilation

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 South Dakota, 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 South Dakota, liens on a piece of property may include:

• Mortgages
• Land sale contracts
• Contracts for deed
• Involuntary liens (includes workmen's liens, liens for unpaid taxes and liens filed by creditors holding judgments against the owner)

Closing Costs

In South Dakota, you can expect the following charges - called "closing costs" - at the time you purchase your home:

• Down payment
• Private mortgage insurance
• Loan discount points
• Loan origination fee
• Underwriting fee
• Processing fee
• Administration fee
• Appraisal fee
• Credit report fee
• Tax service fee
• Flood certification fee
• Document preparation fee
• Settlement or closing fee
• Transfer taxes
• Title search
• Title insurance
• Recording fee
• Inspection fees
• Survey of property
• Hazard insurance reserve
• Prepaid interest
• Tax impounds
• Escrow fee
• Lender attorney fees

Many times buyers and sellers may negotiate who pays which costs as part of the final terms of the purchase and sale agreement.

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.

Mortgages and Contracts for Deed

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 South Dakota, the document you sign as a security interest in your house is called either a "mortgage" or a "contract for deed". A mortgage is when the house itself is the security or collateral for the loan. The buyer becomes the legal owner and gives the lender the right to foreclose and obtain possession of the house if the loan is not repaid. A contract for deed is when the seller remains the legal owner of the property, until the contract is paid in full, and the buyer makes monthly payments to the seller to buy the house.

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 your 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. 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.