Buying a House in Tennessee |
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 Tennessee, real estate agents may represent the buyer or the seller as an agent, or act as a facilitator in a sale, assisting the parties to complete the sale without representing either party. Upon first meeting with a real estate agent about a real estate transaction, the agent must give you a disclosure of agency form, which provides you with information about the options for agency relationships and states the agent's role in your situation. You must then enter into a specific written agency agreement to be the agent's client or the agent will just act as a facilitator in the sale.
Real estate agents have what are called "fiduciary duties," or duties that they must fulfill in providing real estate brokerage services. Real estate agents owe both parties to a transaction the duties of dealing with them in honesty and in good faith, disclosure of adverse facts about a property, confidentiality, and diligence in performing their services. If you are the agent's client, the agent will owe you the additional duties of loyalty and obedience in following your lawful instructions in carrying out the purchase of a home.
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. Home sellers in Tennessee are required to fill out and give you a seller disclosure form, which will provide you with information about known problems with the property.
The seller should disclose information about the following items:
- Defects, leaks or other problems with the foundation, windows, doors and siding
- Problems with roofs, electrical and plumbing work, heating and air conditioning units, septic systems and appliances
- Problems with termites or other insects
- Drainage problems
- Fixtures, such as pools, hot tubs, ceiling fans, satellite dishes and security alarms
- Structural changes or environmental hazards
- Noise or odor nuisances
- Fire damage
- Building code variances
- Deed restrictions
- Utility easements
- Lead paint (required under the federal Residential Lead-Based Paint Hazard Reduction Act of 1992 for homes built prior to 1978)
- Foreclosures or other lawsuits affecting the property title
Purchase Agreements
When you find a house you'd like to buy, you'll put together and sign a purchase and sale agreement, or "offer to purchase," which contains all of the terms of the sale, including the following:
- The names and addresses of the sellers and purchasers
- The purchase price and down payment
- Arrangements for financing
- The legal description of the property
- A provision that title to the property shall be good and marketable of record, subject to reasonable easements
- The condition of the property at the time of sale
- Date of settlement and possession
- Statement of the settlement costs
- Provision as to who bears the risk of loss if the property should be damaged prior to settlement
- Liens on the property
An important thing to remember is that you should consult your Tennessee 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
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 Tennessee, 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 Tennessee, liens on a piece of property may include:
- Mortgages
- Construction or mechanics' liens
- Judgment liens
- Tax liens
Closing Costs
In Tennessee, you can expect the following charges - called "closing costs" - at the time you purchase your home:
- Down payment
- Loan origination fee
- Loan discount
- Appraisal fee
- Credit report
- Recording and notary fees
- Title insurance
- Escrow fee
- Property inspection fee
- Mortgage broker fee
- Tax service fee
- Flood certification fee
- Flood monitoring
- Document preparation fee
- Underwriting or administration fee
- Attorney's fees
- Property and hazard insurance
- Property tax
- Private mortgage insurance
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
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 Tennessee, the document you sign as a security interest in your house is called either a mortgage or deed of trust.
Both deeds of trust with private power of sale and mortgages are used as security instruments, and under these documents, you agree to allow the lender to foreclose or sell your house, if you default or fail to make your loan payments. Deeds of trusts contain a power of sale clause, which allows the lender to sell your house if you default on the loan without first going to court (called judicial foreclosure) to get a foreclosure judgment. Some mortgages may contain a power of sale clause as well. Mortgages without such a clause require judicial foreclosure. Because mortgage terms and rates may vary, it's a good idea to shop around and get the best possible deal.
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.
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