Buying a House in Virginia

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 Virginia, real estate agents may represent the buyer, the seller, or act as a dual agent, representing both the buyer and the seller in a real estate sales transaction. When a real estate agent first has substantive contact with you about a property or properties, you are to be given a written disclosure form, which informs you of the agent's relationship with others who are parties to the sale. It is also possible to work with a real estate agent as a customer, not a client, but this means that the real estate agent will not represent you, and will not owe "fiduciary duties" to you, which refers to the duties owed by the agent to the client, in this case, the buyer, under Virginia law. In addition to duties or obligations that are stated in a brokerage agreement or other contract, a fiduciary's duties include:

• Loyalty
• Disclosure
• Confidentiality
• Account for funds
• Reasonable care and diligence
• Obedience to lawful instruction

Real estate agents, regardless of whether they represent a buyer or a seller, must treat the other party to the sale with honesty, and can't knowingly give them false information. Under Virginia's Residential Property Disclosure Act, the seller must give you a disclosure statement or form; the form states that the seller does not make any representations or warranties as to the condition of the property and its improvements, and the buyer is advised to take whatever steps he feels are necessary in buying the home, including obtaining a certified home inspection. However, the Residential Lead-Based Paint Hazard Reduction Act of 1992 which applies to homes built prior to 1978, requires disclosures related to the presence of lead paint on the property.

Purchase Agreements

When you find a house you'd like to buy, you'll put together and sign a "binder" or "purchase and sale agreement," which is a preliminary agreement to purchase a house that is secured by the payment of "earnest money" and is between you and the seller.

If you then decide to purchase the house, you will sign an agreement of sale. The agreement of sale is a contract in which a seller agrees to sell and a buyer agrees to buy, under certain specific terms and conditions spelled out in writing and signed by both parties.

The agreement of sale should contain all of the terms of the transaction, including the following:

• The names and addresses of the sellers and purchasers
• The purchase price and how it is to be paid, including the amount of any 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 that the terms of the contract, particularly any warranties as to the condition of the property, should survive the execution and delivery of the deed
• Provision as to who bears the risk of loss if the property should be damaged prior to settlement
• The names and commissions due the sales agents
• Liens on the property

An important thing to remember is that you should consult your 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. A material defect is a defect that is apparent and may be sizable enough to affect your decision to purchase a home. You can make your offer contingent on inspection.

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 Virginia real estate attorney 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 Virginia, 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 Virginia, liens on a piece of property may include:

• Mortgages
• Construction or mechanic's liens
• Judgment liens
• Unpaid taxes

Closing Costs

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

• Private mortgage insurance
• Loan discount points
• Loan origination fee
• Appraisal fee
• Credit report 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
• Escrow fee
• Lender attorney fees

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.

Deeds of Trust and 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 Virginia, the document you sign as a security interest, or the document making the house the collateral for the loan, is called a deed of trust. Under a deed of trust, you will transfer the legal title to the property to a third party, a trustee (usually a title insurance or escrow company), while you will retain possession and use of the property. Under the terms of the deed of trust, the trustee has a power of sale, which allows the lender to have your house sold if you default or fail to make your loan payments. Lenders often prefer security interests in the form of a deed of trust, as compared with a mortgage without a power of sale, because if you default, the lender does not have to go to court and get a foreclosure judgment before selling your house to pay off the loan, which saves time and money.

It's a good idea to shop around and get the best possible deal when financing your purchase.

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.