Buying a House in Washington

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 Washington, real estate agents may represent the buyer, the seller, or act as a dual agent and represent both the buyer and the seller in a real estate sales transaction. A real estate agent who is providing real estate brokerage services for a buyer is presumed to be the buyer's agent, unless some other agency agreement is in place, for example, an agreement to be the seller's agent or a dual agent.

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 the agents are held by law to owe specific duties to the buyer. Washington law requires agents to disclose whether they represent the buyer or seller (or both). Written or verbal disclosure is required before showing homes for sale. In addition to the duties set out in a buyer's agency agreement or other contract, a fiduciary's duties include:

• To exercise reasonable skill and care
• To deal honestly and in good faith
• To present all written offers, written notices and other written communications to and from either party in a timely manner
• To disclose all existing material facts known and not apparent or readily ascertainable to a party
• Account for funds
• To provide a pamphlet on the law of real estate agency to all parties to whom the agent renders real estate brokerage services
• To disclose in writing to all parties to whom the agent renders real estate brokerage services, before the parties sign an offer in a real estate transaction handled by the agent, whether the agent represents the seller, the buyer, both parties or neither party. This is called an "agency disclosure statement"

Under Washington law, the seller must provide the buyer with a written property disclosure statement, unless the buyer waives the right to receive it. A seller should disclose the following potential house defects and information about the property:

• Plumbing and sewage problems
• Water leakage of any type, including in basements
• Termites or other insect infestations
• Roof defects
• Heating or air conditioning system or electrical system problems
• Property drainage problems
• Foundation instabilities or cracks or other structural problems
• Problems with title to the property
• Property's water source
• Environmental issues or hazards
• 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", which is often called an "earnest money agreement" or "contract of sale" in Washington. This document states the price and terms under which you are obligated to buy and the seller is obligated to sell. Under state law, the contract of sale must be in writing and signed by you and the seller.

In addition to naming the parties, price and terms of the purchase, a purchase and sale agreement should also include the following items:

• Legal description of the property
• Condition of the title
• Warranties of title
• Condition of property and of zoning or use rights
• Prorations of taxes, special assessments, obligations and prorations regarding insurance premiums
• Stipulation of who bears costs for such items as transfer fees and state revenue stamps
• Financing, if it is a contingency of the purchase
• Complete terms and documents to be used if the seller is supplying financing and receiving security for such financing
• Items of furnishings, fixtures or appliances to be included or excluded
• Right of inspection given the buyer
• Date of possession
• Conditions under which an offer may be canceled as well as provisions for return or forfeiture of the deposit

An important thing to remember is that you should consult your attorney before you sign the contract. The transactions involved in purchasing a home give rise to a number of legal questions that a Washington attorney 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.

An inspection generally covers the following:

• Exterior and roof
• Structure
• Electrical
• Heating
• Air conditioning and heat pumps
• Plumbing
• Cooling
• Insulation and ventilation
• Interior

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 legal title issues you'll need to understand.

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

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

Closing Costs

Closing costs are the fees for services, taxes or special interest charges that surround the purchase of a home. They include upfront loan points, title insurance, escrow or closing day charges, document fees, prepaid interest and property taxes. Unless, these charges are rolled into the loan, they must be paid when the home is closed. In Washington, you can expect to pay for the following charges at the time you purchase your home:

• Loan origination fee
• Application fee
• Homeowner's insurance
• Transfer taxes
• Title insurance
• Escrow fees
• Attorney fees
• Appraisal
• Credit report
• Recording fee
• Inspection fees
• Survey of property

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. In Washington, the document you sign as a security interest in your house is called a deed of trust or a mortgage.

A mortgage is the instrument, usually held by the lender, by which the property is named as the collateral to secure the payment of a debt or obligation. If you fail to make your loan payments, the lender will then have to bring a foreclosure action and obtain a foreclosure judgment before your house can be sold to pay off your loan. A deed of trust has similar functions, but is usually held "in trust" by a trustee; under the deed of trust, you place the title to your property in the name of the trustee, while you keep possession of the property and continue to use it. A deed of trust is often preferred by lenders because it will contain terms for a "power of sale," which allows the trustee to sell the property if you default (fail to make payments) on your loan without first going to court and getting a foreclosure judgment.

It's a good idea to shop around and get the best possible deal for financing for the purchase of your home, as loan terms can vary from lender to lender.

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.