Real estate sales are subject to slightly different laws than sales of goods or services. If you are buying or selling real estate properties, you need to consider all of the particular legal issues involved or risk costly mistakes or even lawsuits. A Priori real estate lawyer can help you navigate ths legal ins and outs of buying or selling real properly.
Real Estate Contracts
The most important legal consideration for anyone involved in real estate sales, whether as a buyer or a seller, is the contract. Real estate purchase agreements generally are fairly standard, yet it is still vital to review these documents before signing. Otherwise, you risk potential liabilities, unexpected costs or even unexpected legal consequences.
The following are key provisions that must be addressed within every real estate contract:
Financing Terms. All real estate contracts must have not only price agreements, but also agreement upon any additional financial conditions.
Proration. Any property taxes and rents may be prorated based on the current year’s tax.
“As Is.” Generally, real estate is sold “as-is,” that is, any problems with the real estate property are the responsibility of the buyer after the deal goes through.
Possession. This clause establishes when formal possession of the house—and all risk— passes to the buyer. Generally, this is either when the title transfers or on the closing date.
No Judgments. There may be a clause ensuring that there are no known judgements against the property, nor is it involved in any bankruptcy proceedings.
Closing. The closing date should be established, as well as who will pay any closing costs.
Home Inspection. Many real estate contracts have a clause that allows the contract to be nullified in the event that a home inspection reveals significant or expensive-to-repair flaws in the property.
Fixtures and Appliances. Any fixtures or appliances that will be included in the sale must be detailed in the purchase agreement.
Disclosure Warranties. Real estate sales contracts should have warranties that all known material flaws or potential problems with the property have been disclosed.
Unauthorized Practice of Law
If you are acting as a broker or sales agent for real estate sales, it is important that you do not modify or write an part of the purchase agreement without the help of a qualified real estate attorney. Doing so could constitute an unauthorized practice of law. Third parties to the sale are only authorized to fill in the blanks of a pre-prepared sales contract that has been looked over an attorney.
Only actual parties to the purchase agreement could modify the terms without potential legal consequences, although even buyers and sellers may find it helpful to consult a real estate lawyer before modifying a standard real estate contract.
Real Estate Settlement Procedures Act
Under the Real Estate Settlement Procedures Act, it is required to inform homebuyers about the costs of closing before any real estate sale takes place. Also, mortgage brokers, lenders, title services or real estate brokers are prohibited from giving or receiving anything of value in return for referrals. If you are acting as a real estate broker or agent, it’s vital to avoid anything that could be considered a kickback, or you risk liability under this law.
Misrepresentation and Failure to Disclose
One of the most common causes of lawsuits that come out of real estate sales is misrepresentation or failure to disclose. By law, sellers are required to accurately represent any known defects of the property being sold. Any misrepresentations can be negligent (in that you did not properly investigate for possible problems with the property) or fraudulent (in that you knowingly lied about the property). If you misstate or do not reveal some material feature of the property, you can be held liable if you should have reasonably known the truth.
Before you close any real estate sale, it’s important to clear the title. Clearing the title gives the new owner a marketable or clear title, that is, a property title free of liens, encroachments and encumbrances. The most common barriers to clear titles are mortgage, construction, and judgment liens and property line disputes. Without a clear title, you can run into problems later, ranging from lawsuits to foreclosure. That’s why it’s so important to make sure all issues are taken care of before closing.
While most property deals require a clear title, some will have minor clouds on title, or defects. The most common of these is an easement. Easements are property interests granted to another party that give them permission to use the land for a certain purpose. These positive easements sometimes can be as small as permissions for the electrical company to enter your property to check a power line or larger, such as permission for a property owner behind you to use a road through your land. There can also be negative easements, which are restrictions on what you are allowed to do on the given real estate property. Common negative easements include building near a property line or building a multi-story unit that blocks a view. Easements are not generally, on their own, an immediate reason not to sign a property deal, but it’s important to consider whether or not a particular easement will significantly impede your plans or devalue the property.
What are fair housing laws and how do they apply to real estate sales?
Fair housing laws require real estate to be sold to the buyer with the best offer, regardless of race, ethnicity, age, or other protected class. If you are perceived to be violating fair housing laws, you can be sued for a costly discrimination settlement.