OpenJurist

What are the basics of the sale and purchase of property?

A contract to sell real estate is an agreement between a buyer and a seller to convey title to a piece of real estate for a given price. Those persons identified as being on the title are the legal owners of the property.

Other persons may have an equitable interest in the property. What that means is that before the property can be sold, those equitable interests or claims would have to be satisfied. For instance, a lender, lien holders, or perhaps a spouse whose name is not on the deed may as a matter of law have an equitable interest in the property.

A contract for sale of real estate may contain a number of contingencies. A contingency is a provision within the contract that states that the contract may be declared null and void by one or both parties unless certain events occur. For instance, a standard provision within a commercial real estate contract is what is known as a feasibility contingency. The feasibility contingency generally gives the purchaser anywhere from thirty to sixty days to study the property to determine whether it can be used for the commercial purpose for which the buyer intends to use it. The study by the pur­chaser may involve a review of the zoning laws, studies of the soil to make sure that the land is suitable for the intended construc­tion, or engineering analyses to determine that the contour of the land is appropriate for the intended construction.

A similar type of contingency is found in a residential con­tract. It is generally referred to as a home inspection contingency. A home inspection contingency usually gives the purchaser anywhere from five to ten days to have the home inspected to determine whether it meets with the purchaser's approval. At any time during the home inspection contingency, the purchaser may rescind the contract.

Another contingency within most contracts is the finance contingency. That is, the buyer's obligation to settle is contingent upon the buyer being able to get the necessary financing or money from a lender on terms agreeable to the buyer in order to acquire the property. If the buyer cannot do that, then the buyer's obligation to settle on the contract is nullified. Once all of the contingencies have been removed, the buyer and the seller are irrevocably locked into going to settlement.

A real estate settlement typically consists of the parties appearing either at a lawyer's office or the office of a settlement agent. There the seller signs a deed to the property. The purchaser signs whatever financing documents are necessary to obtain the loan. Then, a variety of other documents may be signed in order to satisfy the requirements of the institutional lender who provides the money for the purchase of the property and the title insurance company who insures that good and marketable title passes to the buyer.

In going to settlement or closing (the terms are generally used synonymously), title to the property is conveyed from a seller to a purchaser. The conveyance of title is accomplished by a docu­ment referred to as a deed. A deed is a written instrument signed by the seller, identifying the property in question by precise legal description, and stating the nature of the title interest being conveyed by the seller to the purchaser.

The deed may then be recorded at the courthouse to serve as a notification to the entire world that the seller is no longer the owner of this property but on the date in question has conveyed the property to the purchaser. The conveyance is considered to be effective when the deed is physically delivered by the seller to the purchaser. The delivery normally occurs at settlement when the seller signs the deed and then tenders it to the settlement agent who acts on behalf of the purchaser.

There are a number of different forms of title ownership that may be conveyed. The most common forms of title ownership are referred to as legal title and equitable title. Legal title is determined by looking at the deed to determine who at that point in time is recognized by the deed as the owner of the property. Equitable title refers to the interest another person or institution, such as a bank, may have in a piece of property.

Different jurisdictions handle real estate financing in different ways. In some states, the real estate financing that is utilized for a purchaser to buy real estate is a mortgage. In other instances, it may be a deed of trust. Although those different documents can have significantly different meanings, the effect is much the same-giving a security interest in your real estate to the lender who loaned you the money in order to acquire the property or to refinance the property.

If you do not make your monthly payments in a timely fash­ion, the lender may decide to foreclose. If they foreclose, that means they are going to sell your property at a public auction where anyone could come in and bid on your property. The objec­tive of the lender in that instance is to recover all of the money loaned to you that is still outstanding, plus any interest that is due at that point, along with any expenses, trustee and/or attorney's fees that they have incurred in having to foreclose.

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