Buying a House in Wisconsin

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 Wisconsin, real estate agents may work with buyers and sellers as clients, which means that there is an agency agreement between the parties, or as customers. Real estate agents may also enter into multiple representation relationships, which means that they serve as an agent to both of the parties to a sales transaction with the parties' consent. Real estate agents must perform certain duties in the providing real estate brokerage services to either clients or customers including:

• Dealing with you fairly and honestly
• Reasonable skill and care
• Providing information on market conditions
• Confidentiality
• Accounting for funds and property received in the course of a transaction

If you enter into an agency agreement with a real estate agent, the agent will have a "fiduciary duty" to you, which means that under the law, the agent owes certain duties to you, in addition to the duties under your agency agreement including:

• Loyalty
• Obedience
• Disclosure
• Confidentiality
• Reasonable care and skill
• Diligence
• Accounting

Real estate agents must provide customers and clients with a disclosure statement, which provides details about the types of representation available, and the real estate agent's role in providing you with real estate brokerage services.

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.

Under Wisconsin law the seller must provide written disclosures, by way of a Real Estate Condition Report, regarding matters the seller knows about and that adversely affect the property. The report should disclose the following items:

• Defects in the roof
• Defects in the electrical, plumbing, heating or air conditioning systems
• Defects in the well
• Defects in the septic system or other sanitary disposal system
• Underground or above ground fuel storage tanks on the property or previously on the property
• Defects in basement or foundation
• Knowledge of property being located on a floodplain, wetland or shore land zoning area
• Defects in the structure of the property
• Defects in mechanical equipment included in the sale
• Boundary or lot line disputes, encroachments or encumbrances
• Defects caused by hazardous or toxic substances on neighboring properties
• Termite or other infestations
• Defects in wood burning stove or fireplace
• Remodeling affecting property's structure or mechanical systems or additions made to property without required permits
• Regulations requiring repairs, alterations or corrections of exiting condition
• Other than normal annual property tax increases or pending property reassessment
• Remodeling that may increase property's assessed value
• Proposed or pending special assessments
• Proposed construction of a public project that may affect the use of the property
• Subdivision homeowners' associations, common areas co-owned with others, zoning violations or nonconforming uses, rights-of-way, easements or another use of a part of the property by nonowners, other than the recorded utility easements
• Lead paint (required under the federal Residential Lead-Based Paint Hazard Reduction Act of 1992 for homes built prior to 1978) or other environmental conditions, including the presence of radon or toxic mold
• Other defects affecting the property
• Awareness that a structure on the property is designated as a historic building or that part of the property is in a historic district

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 "residential offer to purchase, or "purchase agreement," 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 Wisconsin 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

You can report any problems with a home inspection service by filing a complaint at the State of Wisconsin Department of Regulation and Licensing Web site.

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 Wisconsin, 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 Wisconsin, liens on a piece of property may include:

• Mortgages
• Construction or mechanics' liens
• Judgment liens
• Tax liens

Closing Costs

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

• Down payment
• Private mortgage insurance premium
• Loan discount points
• Loan origination fee
• Appraisal fee
• Credit report
• Insurance escrow for homeowners insurance, if being paid as part of the mortgage
• Property tax escrow, if being paid as part of the mortgage
• Deed recording fees
• Title insurance policy premiums
• Survey
• Inspection fees
• Notary fees
• Prorations for your share of costs, such as utility bills and property taxes

Many times buyers and sellers may negotiate who pays which costs as part of the final terms of the purchase and sale agreement. Also, lenders keep funds for taxes and insurance in escrow amounts as they are paid with the mortgage and then pay the insurance or taxes for you.

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 Wisconsin, the document you sign as a security interest in your house is called 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. Generally, mortgages require judicial foreclosure, which means that the lender must go to court and get a foreclosure judgment before your house is sold in a foreclosure sale. However, under a deed of trust, in which the legal title to the property is placed in the name of a third party (usually a title insurance or escrow company), you retain possession and use of the property. Under some mortgages, there is a power of sale, which means that if you default or fail to make your loan payments, the lender can have your property sold without first going to court. Because mortgage terms and rates may vary from lender to lender, 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.