Most homebuyers and some new investors are not familiar with the process of purchasing real estate, from executing the contract all the way through to the sale closing. That generally means that they potentially have to put their trust in several people — mortgage brokers, real estate agents, title agents and sellers (who potentially have been through this process before). Often times, many don’t feel that they have anyone looking out for their particular best interest. Below I have highlighted a number of items for the novice purchaser of real estate to be aware of and make sure are handled correctly.
The first step in any home purchase is the execution of the purchase contract. Make sure that you understand everything that is covered in the contract. My best advice is to retain legal representation to review everything on your behalf and advise you on what you are obligating yourself to prior to executing the contract. This cost should not be more than $500. Don’t simply assume that the agent, mortgage broker or title agent is operating in your best interest. Once the contract is signed, then you are obligated because it is too late to make changes. This is particularly true on new build contracts with a builder. These contracts can be quite extensive; and the terms may not be in the buyer’s favor.
Once the contract is signed and put into the title company into escrow, the following items need to be provided/reviewed before closing:
- Title Commitment – This is the report regarding the current state of the title to the property prepared by a professional title examiner. This report shows what currently affects the property and what must be resolved in order for the buyer to receive an acceptable title to the property. If there is anything in the title commitment you don’t understand, speak to an independent party to review it with you and ensure there are no surprises.
- Survey – A survey is a drawing regarding the property containing all improvements, easements, setbacks, etc. affecting the property. There may be encroachments of improvements over easement lines, set back lines or boundary lines that would need to be addressed before closing. It is acceptable to allow a seller to provide an existing survey, provided that the title company accepts it for insuring purposes and the seller provides an affidavit stating that there have been NO CHANGES since the survey was done and certified. I also recommend paying the small premium required to have the title company ensure that accuracy of the survey in the title policy.
- Homeowner Association Documents – Most new subdivisions being built will be subject to restrictions and other matters governed by a homeowner’s association (HOA). Always get these documents provided to you PRIOR to closing for review. These documents include a Declaration of Restrictions, covenants and Easements, as well as a Resale Certificate issued by the Homeowners Association. The Declaration needs to be reviewed so you know exactly what restrictions on the uses of your property are in existence, i.e., nature of improvements, color, landscaping, etc. The Resale Certificate will tell you whether there are any current violations of the Restrictions or Bylaws of the Association and how much the dues and other costs will be for the buyer.
- Taxes – A tax certificate is required for closing by the title company. This document shows the current state of the payment of property taxes and what exemptions are currently in place. It is essential that the novice purchaser know what the taxes are, what exemptions affect the property and what the future taxes could be.
- In particular, there are a number of different issues that may involve taxes. Those can include:
- Purchasing a property from an over-65 seller – The over-65 seller may have an exemption that the new buyer will not be entitled to and can change the total taxes due the following years and the escrow payments that may be required under the new mortgage loan.
- Purchasing a property from the heirs of an over-65 deceased owner – The over-65 exemption went away the day the deceased owner passed away. There is no entitlement to that tax reduction any longer once the owner has passed; however, the tax office has no way of knowing that an owner has passed away until a document is recorded in the real property records or court records, i.e., a probate of a will, an affidavit of heirship, etc. Once these documents are recorded, the tax office will eventually go back and reassess the taxes for the period of time since the deceased owner’s death. If the buyer is not careful, they could be saddled with those reassessed taxes post-closing. This reassessment is not covered by the title policy issued to the buyer by the title company at closing and could end up being the buyer’s burden.
- Purchasing a newly-constructed property from a builder or rehabber – The assessed value for taxes for the prior year, pre-completion or pre-rehabilitation, will be significantly lower than the assessed value of the property once the improvements are constructed/improved.
- Purchasing a newly-constructed property that is part of previously undeveloped land – The issue of “rollback taxes” can come into play in this scenario and the buyer could end up owing up to five prior years of taxes if the prior exemption is lost.
- Prorations – The contract will call for taxes to be prorated between the parties, i.e., the seller should be responsible for the portion of the year that the property was owned by the seller and the buyer should be responsible for the portion of the year after closing. The title company calculates these prorations at the closing; however, the issues brought up in Item 5 above can come into play with prorations as well. Not all escrow agents may be knowledgeable in these issues and the chance of errors in the prorations (to the buyer’s detriment) can be high in certain instances.
- Post closing – As the buyer, make sure you receive the original Owner Policy of Title Insurance from the title company. It should come in the mail no later than six to eight weeks following closing. This is your insurance policy regarding the state of the title to the property. It should be placed in your records regarding the property so you will be able to access it if any issues regarding the title develop. If you do not receive it, follow up with your title closing office until it is received.
The above items are just some of the frequent issues that may arise in a real estate closing. If there is anything you do not understand in the entire process, do not hesitate to ask questions and, if you can afford it, seek your own professional advice from a lawyer who can represent you on all these issues.
Gaylene Rogers Lonergan
Real Estate Law Attorney
Lonergan Law Firm PLLC and title closing office
12801 North Central Expressway, Suite 150, Dallas, Texas 75243
214-503-7509 | lonerganlaw.com | grogers@lonerganlaw.com
© Gaylene Rogers Lonergan and Lonergan Law Firm, PLLC, 2024. All rights reserved. This article is provided for educational reasons exclusively and is not meant to be construed as legal advice. The Lonergan Law Firm, PLLC, will represent you only after being retained and that agreement is made in writing.
