Buying a House in Texas

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 Texas, real estate agents may act as an owner's or a seller's agent, a buyer's agent or act as an intermediary in a transaction, who just assists the seller and the buyer with completing a sale. At the first in-person meeting with a real estate agent, you must be given an agency disclosure form, which describes the agency relationship options and the real estate agent's role in your situation. Real estate agents have what's called a "fiduciary duty" to the party who they are representing, in this case, the buyer. This means that they are held by law to owe specific duties to the buyer. In addition to duties or obligations stated in a listing agreement, buyer representation agreement, or other contract of employment, a real estate agent's fiduciary duties include:

• Loyalty
• Obedience
• Disclosure
• Confidentiality
• Reasonable Care and Diligence
• Accounting

Texas law requires that the seller provide the buyer with a completed Seller's Disclosure of Property Condition Notice on or before the effective date of a contract. This statement must disclose all known structural defects as well as problems with or information about the heating, plumbing, mechanical and electrical systems. The seller also must include potential problems of which he or she is aware such as easements, environmental hazards, landfills, flooding, zoning violations or noise problems or termite and pest infestations, treatments or damage.

In houses built prior to 1978, the seller is to disclose 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 seller's possession required under a federal law, 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 agreement, which is called a "purchase and sale agreement," an "offer to purchase" or a "purchase offer contract," in Texas. The sales and purchase agreement should include the following information:

• Parties
• Property description
• Conveyance of property
• Purchase price
• Permanently attached fixtures
• Deposit amount
• Settlement date and costs
• Transfer and recording charges
• Restrictions, easements or limitations
• Financing
• Buyer's duties and responsibilities
• Seller's duties and responsibilities
• Condition of property
• Default provision
• Inclusions and exclusions
• Property insurance and risk of loss
• Attorney's fees
• Termite inspection
• Radon gas disclosure
• Environmental inspection
• Lead paint disclosure

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

The state of Texas has specific laws on what house inspectors can and should do during an inspection. In Texas, this includes inspection of the overall home construction and condition, including major mechanical systems, the plumbing system, the condition of the appliances, and optional systems such as swimming pools, lawn sprinkling systems, outbuildings, outdoor cooking equipment, security systems, gas lines, water wells, septic systems, and fire protection equipment.

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 Texas, for example, an implied easement may be present where there is an easement by necessity. Generally, whenever a transfer occurs that results in a "landlocked" parcel and there is no method of access whatsoever, except over the land retained by the seller, or over the land of a stranger, then the necessity is recognized. Another implied easement is recognized when land in one ownership is divided and, at the time of division, one portion is being used for the benefit of the other portion.

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 as long as it exists and has been recorded in the public records.

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

• Abstract of judgment
• County assessments for road improvements
• County litter lien
• County weed and sanitary lien
• Deed of trust or vendors lien
• Federal estate tax lien
• Federal income tax lien
• Federal judgment lien
• Federal lien securing a judgment imposing a criminal fine
• Homeowners' association lien for assessments
• Mechanic's lien by affidavit
• Mechanic's lien contract
• Miscellaneous state tax liens
• Municipal assessments for street improvements
• Municipal assessments for water/sewer systems
• Municipal demolition lien
• Municipal utility services lien
• Municipal weed and sanitary lien
• Solid waste facility remedial lien
• State inheritance taxes
• Surface coal mining reclamation
• Unemployment taxes
• Water district standby fees
• Water district taxes

Closing Costs

"Closing costs" are those costs that include the mortgage broker's fee, discount points, appraisal and title search fees, insurance charges, survey fees and other charges associated with the legal transfer of the property. These costs typically amount to between 2% and 3% of the mortgage amount.

In Texas, you can expect to pay for the following closing costs at the time you purchase your home:

• Loan discount points
• Loan origination fee
• Underwriting fee
• Processing fee
• Administrative fee
• Appraisal fee
• Credit report
• Tax service
• Flood certification
• Document preparation fee
• Settlement or closing fee
• Title insurance
• Recording fee

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.

You will also sign a security instrument, which will name your property as the collateral to secure the repayment of your loan. This security instrument could be either a mortgage or a deed of trust. Deeds of trust, and some mortgages, contain what's called a "power of sale," which allows the lender to have your home sold if you default or fail to make your loan payments without first going to court in a foreclosure action to get a foreclosure judgment, which saves the lender time and money. Lending terms can vary, so it's a good idea to shop around and get the best possible deal on your 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 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 the 1998 federal law, lenders are required to allow you to drop your PMI once you have 20% equity in your home.