Consumer Pamphlet: Buying a Home

Table of Contents

The Purchase Contract
The Title to Real Estate
Deeds
Joint Ownership
Necessity for Title Examination
Title Insurance
Is the Building Under Construction
Financing Your Purchase
Closing Your Purchase

Introduction

Buying a home may be the biggest investment of your life. To ensure your protection in this important financial transaction, it is critical that you, the prospective buyer, use caution.

Consult with an experienced, Florida-licensed real estate lawyer before you sign a purchase contract. If you need a lawyer and do not know how to find one, the Florida Bar’s statewide service can locate a lawyer for you. You can call this service at 800-342-8011, or visit The Florida Bar Referral Service online.

If you are working with a real estate agent, verify that the agent is properly licensed using the license search option on the on the Florida Department of Business and Professional Regulation website. You may also view the agent’s complaint history, if applicable, through this portal. It is important to review all brokerage documents with your lawyer to understand your agent/broker’s responsibilities to you, and your obligations in the transaction, including any financial obligations you may have to the real estate agent/broker.

The closing agent handling your transaction may be a lawyer, but they may not necessarily represent your personal interest. It is important to understand the role of the closing agent in your transaction.

The Purchase Contract

One of the first documents given to a prospective buyer by a real estate agent or broker is the purchase and sale agreement or contract. This document represents the most important step in purchasing a home, as the details of this agreement dictate the terms of your purchase and such provisions often may not be changed after signing without seller’s approval. The best time to retain a lawyer is before the purchase contract is signed, as it’s much easier for your lawyer to protect your interest at the contract stage. You can also make your offer contingent on lawyer review/approval, but it’s best to have your lawyer review the contract before signing.

There are many different form contracts used in real estate transactions across Florida, but it is important to have the purchase contract prepared/reviewed by your own lawyer before signing to ensure the proper forms are used and the agreement protects your specific interests. Form agreements are negotiable but non-standard terms/unique situations often require specialized language and such drafting should be completed by lawyers where possible.

The law assumes that if you sign and agree to the contract, you have read and understood its terms. The items you should consider discussing with a lawyer when the purchase contract is reviewed include, but are not limited to, the following:

• Does the agreement list the correct property address, legal description, and/or parcel identification number that corresponds to what the buyer is expecting, and does it match what is listed on the deed to the property? What improvements and buildings (including outbuildings) are included in the contract?
• Are the window treatments, fixtures, and appliances included? Which items are excluded?
• What payments are due under the contract and when? What instances could put your deposit at risk? What is a customary deposit under the circumstances?
• When can you take possession? If other than the date of closing, is there an occupancy agreement prepared by a licensed Florida lawyer? Whose responsibility is it to insure the property upon possession? Has the contract been reviewed to provide the protocol that you expect for payment of expenses and allocation of risks?
• Is the seller obligated to furnish you with a good, marketable title? What kind of deed is the seller obligated to provide and how will you take title to the property?
• Who selects the closing agent and who pays for the title insurance for the property in the event the offer is accepted? As a general matter, the party paying is the party choosing, but it’s important to confirm as each contract is different.
• Have utilities been installed and paid for? Are the utilities ready to transfer on the day after the closing date?
• Who is responsible for paying property taxes?
• Should a surveyor be employed to locate the improvements on the property and confirm that there are no encroachments onto or from abutting properties? Who should pay for the cost of the survey? If there are issues that will affect the title, what remedies are listed in the contract? If you are using a mortgage to purchase the home, a survey will likely be required, and for any purchase of a home, including purchases without financing, it is typically recommended that the buyer obtain a survey.
• If a loan is to be obtained from a lender, who will pay the loan closing costs? There are usually local customs as to which costs are paid by the buyer or the seller, but it is better to make this explicit in the contract. If you are obtaining an FHA or VA mortgage, the lender may have restrictions on which party pays which expenses.
• Can you cancel the contract and obtain a refund of the deposits if the buyer is denied a loan, and, if so, under what conditions?
• Should the purchase be contingent on the sale of the property that you currently own? How does this impact your financing?
• What options do you have if the property is uninsurable or the costs to insure the property exceed your budget or impact your loan? Is wind or flood coverage required or recommended?
• Do you have the right to inspect the property including inspecting for mold? When do inspections need to be made? Do you have the right to cancel the contract after inspections?
• If termite damage is found, will the seller have to pay the cost of repairs and treatment?
• If other structural/non-structural repairs are needed, who pays for the repairs? Are there limits to which one must pay if structural damage is found? Does the seller know of any defects? Is the seller required to complete a seller’s disclosure?
• How do you intend to use the property? Are the zoning regulations or other restrictions consistent with that use?
• Are there any environmental concerns that need to be included in your due diligence review? Could the prior use of the property have caused any issues that require professional review?
• Who is responsible for unpermitted work or open or expired permits? Is the seller obligated to disclose this information?
• What is the time within which the offer to purchase should be accepted or refused? Is the date of such acceptance to be vital to the offer?
• Will the process of obtaining clear title, a survey and the mortgage allow you as a buyer to comply with the contractual deadlines?
• Who is the proper party (authorized) to sign and accept the offer to make it binding? If the seller or buyer is a trust or company, who can sign on behalf of such entities?
• Are timber, mineral and water rights, if any, properly covered?
• What are the remedies if the buyer or seller defaults?
• Whose responsibility is it to pay for the real estate broker?
• Whose responsibility is it to pay for governmental special assessments and homeowner or condominium assessments? Does the condominium association have sufficient reserves for future repairs and maintenance?
• Were the appropriate legal disclosures included in the contract, including disclosures related to cooperatives, condominium associations (including disclosures related to a buyer’s right to review a building’s milestone inspection report and structural integrity reserve study, if applicable), homeowner associations, homes built before 1978, radon, Florida-energy efficiency rating, property located in special taxing districts, Foreign Investment in Real Property Tax Act, housing for older persons, and/or properties subject to PACE assessments for energy-efficient/wind-related improvements?

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The Title to Real Estate

When you are purchasing property, you should confirm that you are receiving “marketable title.” Title to real estate is evidenced by a legal document reflecting whole or partial ownership of land and improvements upon the property. If the owner can prove title against all the world and the evidence or proof of ownership is properly recorded in the public records of the county where the property is located, there is marketable title. Your lawyer, after proper investigation, can tell you whether the seller is able to convey marketable title to you.

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Deeds

Deeds are commonly used to convey or transfer title from the old owner to the new owner. Your deed should contain warranties of title from the seller, including warranties that the seller has good and marketable title, free from encumbrances other than as excepted; and the deed should typically include a promise to defend title against the claims of others.

There are three types of deeds that are typically used to transfer ownership, the general warranty deed, special warranty deed, and quit-claim deed. The two warranty deeds offer the best or highest protections when title is transferred. General warranty deeds require the current owner to defend claims arising from past and present title issues. Special warranty deeds guaranty that the current owner will defend against title issues occurring during their/its ownership only. Quit-claim deeds offer no warranties and can transfer open title issues to the new owner.

Warranties in a deed are not a substitute for a title examination and insurance. Title defects have a way of lying dormant for years and resurfacing long after the property has been paid for and the seller has disappeared or died.

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Joint Ownership

Buyers often acquire title with other persons. In Florida, the three most common types of joint ownership are estate by the entireties, tenants in common, and joint tenants with rights of survivorship.

When land is owned jointly by husband and wife, it is known as an estate by the entireties. They each own the property in an undivided 100% ownership. Tenants in common each own a partial interest, and if one owner dies, that interest will pass to their heirs and not the other co-owner(s). Joint tenants with rights of survivorship also own equal interests but upon the death of one owner, that interest will automatically pass to the other co-owner(s).

Survivorship rights in a deed may not be a substitute for estate planning. Joint ownership arrangements can occasionally lead to disputes over a right of occupancy, the right to rents/profits from the property, and the obligations of the various owners as to the payment of mortgages, taxes, and property repairs and maintenance. Judgments against one joint owner can negatively impact jointly owned property, including marketability.

Owning property jointly may be a good idea for some but not for everyone. There are many factors to be considered prior to determining the best structure for your ownership, including asset protection, homestead rights, estate planning, tax consequences, and lender requirements, and you should seek direction from your lawyer and tax professional for these important decisions.

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Necessity For Title Examination

A title examination is a study of title evidence from the public records. Each county maintains a grantor-grantee index, but many title companies index public records by legal description. Your lawyer or closing agent examines the applicable title information to determine who owns the property, what use restrictions or easements might apply, and what defects in or claims against the ownership may exist requiring action to secure marketable title.

This may seem to be a simple operation. It is not. It requires interpreting numerous deeds, mortgages, wills, legal documents, court orders, and other instruments; considering the time sequence of transactions and events impacting the title; and applying laws and court decisions to the various situations discovered in the applicable title information.

Proper examination of a title requires a thorough knowledge of many areas of law and the provisions in effect at various periods of time. Examination of title often requires an understanding of the laws of inheritance, probate administration, family law, foreclosure, quiet title, and more. Because an examination of title may cover decades of records and laws change over time, knowing the law in effect at the time of a certain title document is critical. Every chain of title is unique – presenting the need for experienced real estate professionals.

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Title Insurance

In Florida, abstracts of title and opinions of title have largely been replaced with title insurance. Based on the results of the title examination, your lawyer or closing agent will prepare and issue a title commitment itemizing the requirements that must be met for the issuance of a title insurance policy and disclosing the exceptions in that policy. A title insurance commitment is a contract between the underwriter and the proposed insured(s) (i.e., the lender or buyer in a transaction), and the title insurance policy must be issued consistent with its terms when the conditions are satisfied. The resulting title insurance policy is a contract between the underwriter and the insureds providing protection against loss or damage arising from covered matters.

Like any insurance policy, coverage is no greater than the contracted policy amount. Any policy can list matters substantially affecting title that are exceptions to coverage and are not insured. Not every title exception is a title flaw; for example, covenants, conditions, and restrictions in platted subdivisions are very typical, and while they govern one’s use of the property, they do not generally impact marketability or trigger title issues.

When financing is used to buy property, the lender will require a loan policy for its own protection. The loan policy provides no protection for a buyer, so while institutional lenders may indicate that the loan policy is required and an owner policy is not required, it is important to realize the need for owner’s coverage. In Florida, when a lender’s policy is issued simultaneously with an owner’s policy, the lender’s policy may be offered at discounted rate, but buyers are almost always advised to obtain their own owner’s title insurance policy even though it may not be required by the lender.

A lawyer representing your interests can advise you on the extent of protection available through your owner’s policy. Even if your lawyer does not issue your title policy, your lawyer can advise you whether the exceptions from coverage listed in the title insurance commitment will be appropriate under the contract or trigger a title objection. Title insurance premiums should be disclosed separately from any fees for legal representation. Title insurance premiums are promulgated and based on the coverage amount.

A title policy contains provisions for continuation of coverage to the extent of liability under any deed warranties, so even after the property is sold, that title insurance policy should be retained if the insured conveys by Warranty Deed.

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Is The Building Under Construction?

If the home you are buying is under construction or has been built recently, special care is required to make sure that all building costs have been paid by the sellers and that you are fully protected as to the provisions of the Florida Construction Lien Law in Chapter 713 of the Florida Statutes. You should consult with your lawyer for full information as to your rights and responsibilities under this law prior to executing a purchase contract and closing on the transaction.

Construction-related issues may also apply if the property was recently repaired or building material was recently delivered. Failure to protect against construction liens can result in the property’s being subject to liens.

Prior to closing, you should perform a walk-through inspection of the property to ensure that the improvements were completed. Lawyers will also typically suggest that you obtain a municipal lien search to determine that there are no open or expired permits, or violations that may negatively impact home ownership. Be sure that the county or municipality has issued a Certificate of Occupancy or Certificate of Completion to ensure that the building can be legally occupied.

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Financing Your Purchase

Many financing arrangements are available to buyers: fixed or variable rate mortgages, conventional mortgages, government-insured VA and FHA loans, as well as specialized mortgages designed for specific financial situations. Your lawyer, lender, and tax professional can help you determine the most advantageous plan, based on your needs and financial situation, including the tax consequences associated with such options.

Your purchase contract will allow the option to include a financing contingency, which means that your obligation to purchase the property would be contingent upon you obtaining loan approval for a specified loan amount and specific financing terms. The contingency should consider the specific property conditions and the appraisal requirements of the lender.  If you are unable to obtain a loan within the contingency period, the financing contingency provisions may allow you the opportunity to terminate the contract and receive a return of your deposit.  Alternatively, you can obtain financing for your purchase without a contingency, but if the lender is not ready to close on the closing date, your deposit funds would be at risk if you fail to close by paying the full purchase price in cash.

The timing of your loan closing is very important, and if you do not plan to be present to execute your loan documents on the day of closing, special arrangements should be made well in advance to accommodate a mail-away closing. Most financed transactions of residential property are required to comply with the Consumer Financial Protection Bureau (CFPB) TRID three-day disclosure rule. This means that a Buyer must receive the initial Closing Disclosure (settlement statement) from the lender at least three business days prior to signing the loan documents. This requirement can impact closing dates specified under the purchase contract.

Regardless of the type of loan, you should be aware of specific terms the lender may require such as:

• Prepayment penalties;
• Limitation of your right to sell or convey the property without lender’s written consent;
• Maintenance of insurance coverage;
• Tax and insurance escrow payments;
• Limitations on your use of the property;
• Occupancy requirements;
• Lender’s right to change interest rates during term of the loan; and
• Lender’s right to change interest rates if you assume an existing mortgage.

You also should determine if, in the future, you will be allowed to borrow additional money secured by the same mortgage. You’ll want to ask your lawyer and lender to explain all costs of the financed transaction, including service charges, appraisal fees, survey costs, escrow fees, and the lender’s attorneys’ fees.

Remember, when you sign a mortgage note, you are ordinarily responsible for the full payment of the total debt and interest. Even if you later sell the property to someone who agrees to assume payment of the mortgage, your responsibility continues unless the lender releases you.

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Closing Your Purchase

Closing a real estate transaction is a technical and complex procedure. The first and most important phase is the careful drafting of the purchase contract and other documents to carry out the actual intent of the parties involved, including the seller and buyer. It is also vital to ensure that the parties satisfy their contractual obligations and technical title requirements for closing the transaction in accordance with local, state, and federal laws.  The closing agent will provide the parties with a proposed settlement statement setting forth the financial terms of the transaction, including credits/debits, prorations, closing costs, and other fees customarily required by the parties. The seller’s documents will need to be executed in the presence of two witnesses and a notary. The buyer’s documents may be executed electronically for a cash transaction, but the loan documents will need to be notarized.  The buyer and/or the buyer’s lender will be required to wire all funds necessary to complete the purchase to the closing agent prior to or on the day of closing.  Care must be taken to ensure that the title agent’s wiring instructions are independently and personally verified, as wire fraud is rampant in real estate transactions.

It is prudent to ensure proper legal representation of your interest at all stages of the transaction.

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The material in this pamphlet should not be considered legal advice. Because the law is continually changing and every situation is unique, some provisions in this pamphlet may be out of date or not applicable. It is always best to consult a lawyer about your legal rights and responsibilities regarding your particular transaction.

[Rev. September 2022]