The Residential Real-property Transaction
The residential real-property transaction is the bread and butter of most real-property lawyers. Legal professionals are involved in defining the terms of the transaction, assuring that any contractual conditions are satisfied, examining the title to the property to ensure that the proper ownership interests are transferred, and overseeing the closing. Paralegals are involved in each of these critical stages of a residential real-property transaction.
The Formation of the Sale Agreement
A residential real-property transaction begins with the formation of a contract. The standard elements of contract formation — agreement, consideration, capacity, and legality — apply to a residential real-property sale. In addition, because the contract involves the transfer of an interest in land, the terms of the contract must be in writing.
The residential real-property transaction begins with an offer from the buyer. An offer is more than just a statement of the amount of money the buyer will pay for the property. The offer should also include a description of the property and any conditions that might affect the buyer's willingness to complete the transaction. Common conditions are the ability of the buyer to obtain acceptable financing, the ability of the buyer to sell other property within a specified time, or a requirement that the property pass an independent home inspection.
The buyer usually tenders an earnest money payment. This is the equivalent of a down payment on the buyer's payment obligations under the contract. If the seller accepts the offer, the earnest money serves as security for damages if the buyer breaches the contract.
The Purchase Agreement
The buyer's offer is usually recorded in a purchase agreement. All of the conditions and exceptions proposed by the buyer are listed on the purchase agreement together with the purchase price and a description of the property. In most states, the purchase agreement is on a preprinted form that contains many other provisions. These provisions are often warranties of the purchaser required by statute, or items of standard practice reduced to writing and converted to contractual obligations. For example, a common provision of a preprinted purchase agreement is the requirement that the seller produce evidence of ownership for examination by the buyer.
All residential real-property purchases involve the transfer of title to real property. The title to real property is the evidence of ownership of the property being sold. The document that reflects the transfer of ownership (the deed) is filed with the county office responsible for maintaining the records of real-property transactions, usually called the county recorder. These records are used to verify that the current seller actually possesses a transferable ownership interest. The inspection of these records is known as a
Although title examinations once took place in the county recorder's office, another method of title examination is used today. Today a title examination consists of examining an abstract of the transaction documents recorded with the county recorder. The abstract is prepared by a registered abstractor, who examined the transfer documents related to a specific parcel of property, and provides a summary of the document. Abstracts may be very short if there have been few owners of the property or very long if several people have owned the property.
The examination of the abstract is intended to determine whether there is some reason why that seller cannot transfer a complete interest in the real property. The inability of the seller to provide a complete interest is called a defect in the title. Common defects in the title to real property are failure to remove a lien on the property, unrecorded transfer documents, or a misspelled name on a deed. These errors are easily corrected. Other defects, such as a difference in the property description from one deed to another, are more complicated and often cannot be corrected without great expense.
Title insurance is not a substitute for a title examination in all cases. Title insurance is designed to ensure that the seller provides marketable title. In many cases, however, there are title problems that do not make the title unmarketable. A prior transfer of mineral interests, for example, would not necessarily make the title unmarketable, but may be significant to the transaction. Lack of access to a parcel of land does not make the title unmarketable, even if the property is unusable.
Because there is no guarantee that a title examination will uncover all defects in title, the buyer of the real property often purchases insurance to protect against a title challenge. Title insurance is issued based on the title examination performed by the buyer's lawyer. The lawyer issues a
Once the parties have satisfied all of the condition of the real-property purchase agreement, they are ready to complete the transaction. The final meeting between the buyer and seller is called the closing. The parties come to the closing prepared to sign the documents required to transfer the title to the property and to pay the balance of the purchase price. Because closings require a detailed understanding of the specific documents that must be exchanged and the payment of various expenses and costs, closings are often administered by paralegals.
A residential real-property closing is the formal performance of the obligations of the purchase agreement. Once the parties are satisfied that all the conditions of the purchase agreement are met and that the seller is able to convey good title, the parties can meet and exchange the documents that will complete the transaction.
The first item addressed at the closing is the
Several documents are exchanged at an ordinary closing. The buyer must sign loan documents and a mortgage note suitable for registering the lender's interest in the property. The seller must confirm certain disclosures and sign a deed that transfers ownership to the buyer. A check for the purchase price, less the seller's closing costs and any money owed to a previous lender, is issued to the seller. Many of these documents must be filed with the county recorder's office and this responsibility usually falls to the paralegal.