Legal Issues When Buying a Home—Part 1

Although you can’t obtain a mortgage before you’ve found a home to buy, you can contact lenders and get pre-qualified for a mortgage, which will help to determine the price you can pay for a home and help move the purchase process along. You’ll want to ensure you can afford your monthly payment and understand how your interest rate is applied so you don’t run into legal problems with your lender as a result of an inability to pay. Mortgage loans and the associated paperwork can be complicated, so, in many instances, it is a good idea to work with a lawyer who can help explain these documents to you.

Once you have found a home to buy, you will make an offer to the seller. Your offer will include not only the purchase price, but also the anticipated closing date, whether there are any contingencies on which the agreement is based (more on this below), and when the offer will expire if it is not accepted by the seller. The seller is not required to accept your offer or contingencies, and may reject it outright or negotiate the terms before a final agreement is reached. Ensure that all required contingencies are included in the offer. The most common contingencies are the mortgage contingency (i.e. you will be able to obtain a mortgage) and the home sale contingency (i.e. you will be able to sell your home).   

If an offer is accepted, the next step is to enter into a more detailed contract for the purchase of the home. The contract is a legal document, which should not be signed or negotiated without the aid of an experienced, qualified real estate attorney. It typically covers all aspects of the sale, and is usually drafted by the seller’s attorney, so review it with your attorney to ensure that it reflects your understanding and contains the conditions and/or contingencies that will cover you in the event that problems arise.

The contract will include the date of the contract, the closing date, the purchase price, the amount of the down-payment, any personal property to be included in the sale (such as lighting fixtures or appliances, as well as any items specifically excluded), a legal description of the property, instructions for paying utility bills, property taxes and other expenses through the closing date, and an explanation of how and when possession of the property will be taken and what the penalty will be if the seller does not leave the home by the specified date.

In many cases, you will want the contract of sale to reflect that the sale is contingent upon your receipt of a mortgage for the property, at a reasonable rate, within a specified period of time; your ability to conduct an inspection; the absence of significant problems with the home; and the seller providing you with clear title. You may also want to include the right to conduct a walk-through inspection within 24 hours before the closing to ensure that nothing has changed, and that any required repairs have been made, as agreed.

Once all of the terms of the contract have been negotiated, it is signed by, and becomes binding on, both parties. You will provide the earnest money specified in the contract, which will be held in the attorney’s escrow account until the closing. If the sale is not completed, you may or may not get your deposit back, depending on the reasons why it was not completed. Once the contract is executed, there is still work to do, and Part 2 of this series will cover the final steps in your home buying journey: the inspection, the title search, and the closing.

If the seller refuses to close or does not satisfy its obligations under the contract, you can walk away from the contract, sue the seller to force them to sell you the property (commonly referred to as “specific performance”), or sue for damages, which can include the cost of any temporary housing or fees incurred in the process of obtaining a mortgage. 

 
If you are buying a house, find a real estate lawyer to help guide you through the process by quickly posting a short summary of your legal needs on Legal Services Link, and let the perfect attorney come to you!

Legal Issues When Buying a Home--Part 2: discusses the final steps in your home-buying experience: inspecting the property, going through a title search, and attending the closing.