By Phil Halverson, Esq., Halverson & Associates
(Reprinted from an article published by the Bar Association)
This article discusses common legal questions that arise in the purchase and sale of real estate.
Buyers and sellers of real estate sign contracts and make important personal, financial and legal decisions. It is intended to help buyers and sellers of property make informed decisions when making or accepting offers, seeking financing or transferring title to real estate.
Real estate is probably the single largest acquisition a person will ever make. It is important to consider these obligations when deciding to purchase property.
Click here to see Part One
6. How Do I Obtain Financing?
Few people are able to pay the full price of their home in cash. Generally, after paying the down payment, the balance of the purchase price is financed by a loan. If they qualify, buyers may arrange for a new loan or assume an existing loan on the property.
7. What Is A Trust Deed?
A Trust Deed is a document used to secure the repayment of a loan of money usually from a lending institution such as a bank or credit union. To make sure that the lending institution will get back the money it lends, it records the Trust Deed on the title to the property. This does not mean that the lender owns the house. A Trust Deed, when recorded, serves as notice to everyone that the lenders has financial interest in the property. The Trust Deed acts as collateral to insure that the lender will be repaid.
8. What Is An Assumption?
It is sometimes possible for buyers to assume an existing loan, depending on the seller’s loan agreement with the lender. When a loan is assumed, the buyer agrees to take over the seller’s obligation to repay the lender. Often a buyer assumes an existing loan because its terms are better than those the buyer could negotiate for a new loan.
9. Do I Need Secondary Financing?
A second or third loan is similar to a first loan. The amount of money available to the borrower for a second loan depends on the amount of equity in the property. The equity is the difference between the value of the property and the amount still owing on the first loan. Lenders charge a higher rate of interest on second and third loans. Second loans are often obtained to finance major renovations to the property or to raise money for family emergencies. Upon sale, the second lender is paid after the first providing there is sufficent money available after the sale.
10. When Should I Start Looking For A Loan?
It is a good idea to start looking for financing before making an offer. Lending institutions will sit down with borrowers and determine the maximum amount of money that can be borrowed and discuss payment schedules. This assists buyers in determining their price range. It is a good idea for buyers to shop around for a loan that best suits their needs. Interest rates and other provisions in loans can vary from lender to lender. A lender may provide the prospective buyers with a “prequalification letter” which can help the buyer in making an offer to purchase.
11. What Happens If I Can’t Get A Loan?
Because most buyers borrow money to pay for property, most offers to purchase contain a “subject to financing” clause. This clause makes the offer to purchase dependent on getting suitable financing by a certain date. A “subject to financing” clause obliges the buyer to make reasonable efforts to seek financing for the amount and on the terms set forth in the offer. If the buyer cannot obtain suitable financing and the condition has not been satisfied, the buyer may be excused from the contract.
12. What’s a Trustor? Trustee? Beneficiary?
The Trust Deed is the document which secures the lender’s loan. The person borrowing the money is the Trustor (borrower), and the lending institution is the beneficiary (lender). The Trustee is generally an independent firm that supervises the conditions of the Trust Deed. The term is the length of time a loan runs before it is due. An amortization period is the total length of time it would take to pay back all the money borrowed including interest. The interest rate and the amortization period together determine the monthly payments that will be made on the amount borrowed.
13. What Happens If I Can’t Make Loan Payments?
The lender is interested in getting its’ loan paid. This is why a Trust Deed is recorded on the title to the property. The recorded lien on the property gives the lender certain rights if the borrower defaults. If a borrower defaults on the loan, the lender has a right to foreclose. A foreclosure is an action taken by a lender to collect all the money owed including the involuntary sale of the real estate.
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Click here to see Part Four
Do you have a question?
If you have questions about any aspect of this month’s featured article, you may submit them directly to the author for consideration. Click here to submit a question about the article “Questions and Answers about Real Estate“.
Founded in 1970, Halverson Associates has been providing quality legal services with an emphasis on Civil Litigation, Business Law, Real Estate, and Personal Injury for over 30 years, and offers a free, initial phone consultation.
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