BUYING A HOME

Your purchase of a home will probably be the largest single investment of your life. To protect that investment, it is important that you work with knowledgeable professionals at each stage of the buying process. As you are shopping for your home, you should also be putting together your "team" of real estate professionals. Each member of your estate team -- your real estate attorney, real estate agent, home inspector, and lender -- has a vital role to play in the process. Selecting them with care and consideration at the outset of the process will keep you from making rushed decisions as your purchase gets into full swing.

Your Real Estate Attorney

In recent years, the process of buying a home has become increasingly complex. Retaining an experienced real estate attorney from the beginning can ensure that you avoid costly mistakes throughout the process. Ideally, you should have your real estate attorney on board before you decide to purchase, and will consult with him or her before you sign any documents. At the very least, if you feel that you must submit an offer to purchase before you have an opportunity to have the offer drafted or reviewed by your attorney, be sure that the offer provides for a reasonable period of time (several business days) for an attorney's approval contingency. During that period, however, any modifications formally requested by your attorney on your behalf may give rise to a counter-offer, leaving you vulnerable to the seller's rejection of the new terms and termination of the contract. In addition, the scope of the contingency may be limited by the contract to matters other than dates and purchase price. For these reasons, it is best to consult your attorney before you submit an offer.

If you do not know an experienced real estate attorney, you should ask your friends and colleagues to recommend an attorney with whom they have had a satisfactory experience in a real estate matter. You may also contact your local bar association and ask for the names of several real estate attorneys in your area. When you contact an attorney, be sure to inquire about the fee arrangement and ask questions about that attorney's experience in handling real estate matters.

Your real estate attorney will be the glue that holds the complex process together. Among other things, your attorney will:

• give you an overview of the process and his or her role in that process

• draft, review, explain and/or negotiate your contract to purchase

• discuss timing and possession issues, including matters relating to your current lease if you are renting

• communicate and negotiate repair issues related by your home inspector

• examine the title commitment and survey to determine that you are purchasing the property contracted for, without encumbrances or title defects you have not agreed to accept

• explain contract contingencies, if any, and monitor deadlines to make sure that those contingencies are met

• verify and explain tax prorations and other closing figures

• attend the closing to ensure compliance with the contract and to review the loan document form compliance with your loan agreement

Much of your attorney's work will be behind the scenes, making numerous telephone calls--to the sellers' attorney, as well as the other members of your team--to ensure that all the wheels are turning to move your purchase forward.

Your Real Estate Agent

Once you have decided upon the area where you wish to live, you can often save both time and frustration by working with an experienced and enthusiastic real estate agent who is familiar with that area. Your agent will work with you to identify the characteristics you are looking for in a home and can save you time and leg-work by identifying homes which meet your specifications and arranging for you to see them.

Recent changes in Illinois law have clarified the relationship between a buyer and his or her real estate agent in ways which promise to be beneficial to both buyer and agent. Now, when you work with an agent to find a home, it is presumed that he or she is your agent, unless you sign an agreement to the contrary. Any agent with whom you work may wish you to enter into an exclusive agreement with his or her broker. Be sure that you understand the terms of the agreement and have it reviewed by your attorney before you sign it. You should have a clear understanding of how, when, and by whom, the broker and agent will be paid for their services.

Your Home Inspector

Recent legislation in Illinois requires most home sellers to provide prospective buyers with a completed disclosure form prior to the formation of a contract. Although the disclosure form may contain information of use to you in deciding whether or not to purchase a particular home, or how much to offer, it is not intended to take the place of an independent, professional home inspector. If you do not undertake a home inspection before you submit an offer to purchase (and time and cost factors may suggest that you wait), you should insist on a reasonable inspection contingency period after acceptance of your offer (again, several business days) to allow for one or more professional inspections of the property. Also keep in mind:

• choosing your own independent home inspector, in advance, as a member of your team will enable you to act quickly during an often brief contingency period

• obtain referrals for a qualified home inspector from friends or colleagues, or contact the American Society of Home Inspector (ASHI) for its members near you

• you may wish to have a general inspection, supplemented by specialized inspections -- for pests, fireplace, heating system or environmental concerns, for example -- as the situation warrants

• do not forego hiring your own independent inspector simply because you are obtaining an FHA- or VA-insured loan which requires an inspection as part of the appraisal, or if the municipality requires an inspection as a condition of any sale

• you cannot require the seller to undertake repairs for matters discovered during the inspection, but you may be able to terminate a contract for a home with unsatisfactory conditions or you may be able to renegotiate a price which reflects the unanticipated problems

• even if your inspector intends to follow up with a written report, do not miss the opportunity to learn about the home by attending the inspection yourself

Your real estate attorney can protect your rights regarding inspection issues by reviewing your contract and its contingencies before you sign it.

Your Lender

You should discuss your financial situation in detail with a mortgage lender before you shop for a home. By enlisting the critical member of your real estate team in advance, you will benefit by having a realistic assessment of your price range before you shop. You should consider submitting a formal application for written loan pre-approval. This will give you the ability to shop with confidence and may give you an edge with home sellers.

When speaking with prospective lenders, ask about all loan costs and fees, not just interest rate and service charges (points). Find out whether a prospective lender can realistically meet your closing time frame and that of any financing contingency you may have. Once you have selected a lender:

• review the "good faith estimate" of closing costs supplied by the lender to verify that the various fees charged by the lender are consistent with those you were quoted

• ask your lender in advance what documentation you will need to supply and come prepared to the application meeting

• make sure you do not lock in a rate which will expire before your contract closing date

• if your lender suggests a co-signer, or a particular method of holding title, consult with your attorney before agreeing

• find out whether your lender will require escrows (reserves) for property taxes, insurance or private mortgage insurance

• to avoid delays, resist the urge to continue shopping with other lenders for a better rate once you have applied

• if you are told you are approved, expect to see a written commitment and scrutinize it for conditions to be fulfilled (e.g., appraisal, explanation letters, copies of checks) before the commitment is binding on your lender

Your attorney is familiar with the mortgage loan process and can help you understand the information you get from your lender and can work with your lender to keep the closing on schedule.

The Contract to Purchase

Once you have selected the home you wish to buy, you must make an offer to purchase in writing. If your offer is accepted, you and the seller will have entered into a binding contract. The contract will govern the transaction, setting forth the rights and obligations of both buyer and seller. It is the single most important document involved in the purchase of a home. The contract will include all the terms of your purchase, such as: purchase price, earnest money, financing terms, closing date, possession date, personal property to be included in the sale, tax prorations, right of inspection, and possible contingencies, such as attorney's approval, inspection, financing, or the sale of your present home.

It is essential that you understand the terms of your offer before you enter into a binding contract. Your real estate attorney can assist you in preparing and presenting your offer. If your offer is presented to the seller prior to your consulting with your attorney, make sure the contract will allow your attorney to review it and modify its provisions, if necessary, during an attorney's approval contingency period as discussed above.

Title Insurance

In most Illinois communities, it is common for the seller to provide you, at the seller's expense, with an owners title insurance policy in connection with your home purchase. Your contract should make this a requirement.

A commitment to issue this insurance policy is furnished to your attorney prior to closing. It will show who owns the property, what liens or other matters affect the seller's ownership (such as mortgages, unpaid taxes or judgment), as well as any easements, building restrictions, set-back lines or other matters of record which affect the property. Your attorney will review this title commitment and require that the seller clear up any items which are not permitted by your contract and which would adversely affect your ownership rights. After closing, you will be issued an owners title insurance policy, which insures your ownership rights subject to the terms of the policy.

If you are obtaining financing to purchase the property, your lender will require that the title company issue, at your expense, a title policy insuring the validity of your lender's mortgage. This is commonly called a loan policy or mortgage policy. It insures only the lender's interest and does not take the place of the owners policy issued to you.

The Other Players

There are other professionals who may be needed as part of your real estate team. They usually will perform a specific role and will not be involved in the transaction on an on-going basis. They may include:

• a surveyor, to determine the location of the improvements in relation to the lot lines and to establish the location of easements, building or setback lines, and improvements on adjacent properties. The contract will govern who is responsible for providing and paying for the survey

• an appraiser, employed at your expense by your lender to determine that the value of the home corresponds with the purchase price. If you are buying without the services of a real estate agent, you may wish to employ an appraiser to give you an idea of the value of the home before you make an offer to the seller

• your tax advisor or estate planner can work with your real estate attorney to assist you in determining how best to hold title or to maximize tax deductions for personal financial or estate planning purposes

• the escrow agent or closer, usually an employee of the title company, who acts as your lender's agent to ensure that the lender's requirement are met before the loan proceeds are disbursed

Pre-Closing Considerations

If there is more than one buyer, your attorney will explain to you the various titleholding alternatives available to co-owners.

These are primarily tenants in common, joint tenancy, or tenancy by the entirety, which is reserved for married couples purchasing the family home. If you are not married, your attorney may suggest that you enter into a written agreement with your co-owner, to spell out such things as sharing of expenses, unequal contributions, and terminating the co-ownership. Inheritance rights will be determined by the form or ownership as well as your individual estate plan and state law.

It is important to plan for the orderly transfer of possession from the seller to the buyer. Your real estate agent should help you arrange a pre-closing inspection so you can determine that the seller has completed any repairs required by the contract and that the property is otherwise in the same general condition as when you entered into the contract.

The contract will control the time of transfer of possession. However, circumstances sometimes prevent absolute compliance with the contract. Rather than terminating the contract or changing the closing date, the parties may wish to negotiate either pre-closing occupancy by the buyer or post-closing occupancy by the seller. Your attorney will point out the risks inherent in such situations and may draft an agreement to address such concerns as occupancy charges, utility payments, insurance considerations, maintenance and repair, penalty provisions, and other consequences of non-owner occupancy.

The Closing

Once the mortgage loan is approved, the title insurance commitment issued and approved, the property surveyed, and you have made the final inspection of the property, you are ready to close. The closing will take place at the office of the title insurance company, the lender, or one of the attorneys if the attorney is a title company agent. The closing will be attended by you, your attorney, the seller (if available), the sellers' attorney, the real estate agents, and the escrow agent or closer, who will act on behalf of your lender. Plan to bring all the papers pertaining to your purchase, including:

• your homeowners insurance policy with your lender shown as an additional insured (in exactly the manner dictated by your lender), and a paid receipt for the first year

• a certified or cashiers check to pay the balance of the purchase price and closing costs not covered by your loan (your attorney will tell you prior to closing the amount and to whom the check should be payable)

• any documents required by your lender to clear loan conditions, as set forth in your loan commitment

• your "good faith estimate" of closing costs prepared by your lender, so your attorney can compare the final loan costs to the estimate to be sure they correspond

There will be many mortgage loan documents and other closing documents to review and sign at the closing. Your attorney will explain these to you and assist you to determine that they are accurate and appropriate. You should receive copies of all documents you sign at the closing, as well as the keys, garage door transmitters, and any warranties and instruction manuals the seller may have available. Sometime after the closing, you should receive your recorded deed and final policy of title insurance from your attorney.

Condominiums

If you are buying a condominium, you will be purchasing a unit together with a percentage share of the common elements (public areas). You will be expected to maintain and repair your unit but you will also be required to share in the costs of repair and maintenance of the common elements. Such sharing takes the form of monthly assessments, and in some circumstances, special assessments.

The governing documents of the condominium association--the declaration, bylaws, rules and regulations--will generally contain restrictions on the use of your unit which may affect your lifestyle, such as limits on pets and restrictions on home occupations. They will also set forth the nature of parking, if any, to be included with your unit.

Illinois law requires a condominium seller, if asked, to furnish to a buyer the governing documents, financial statements, and other specific statements from the board of managers related to known and anticipated expenses, such as pending lawsuits or the costs of repairs, replacements or restoration of the common elements. Your attorney can ensure that your offer to purchase includes a request for these items, as well as a contingency period for your review once you have received them. You can then determine whether you will be able to use your unit for your particular needs, whether you will have parking available (both now and in the future), whether the association is in sound financial condition, and whether there are any existing or anticipated special assessments.

Some condominium associations retain the right of first refusal, allowing the association the right to purchase any unit offered for sale. The seller must obtain a waiver of this right as well as a statement from the board of managers that all assessments are paid in full. You may be asked to provide evidence of financial responsibility or be interviewed by the board as a requirement for its waiver of the right of first refusal, provided, however, that the board may not exercise such rights in a discriminatory manner which would violate federal fair housing laws.

Special Circumstances

This brochure has discussed the basic type of home purchase--an existing single family home or condominium purchase with conventional mortgage financing. A variety of special circumstances -- new construction, cooperatives, installment sale (often called land sale contracts or articles of agreement), seller financing, lease-option, by-owner sale, senior/retirement housing, tax-deferred exchange, multifamily buildings, land trusts, estate planning trusts, planned unit development, condominium conversions, even cash transactions--require additional consideration which are beyond the scope of this brochure. The "standard" forms used in your community may not be appropriate for all of these situation and may not sufficiently protect you. Your real estate attorney can explain the distinctions, considerations and risks of these types of transactions, and then tailor your contract to suit your needs and to afford you the protection you need.

Copyright, Illinois State Bar Association

This Pamphlet is prepared and published by the Illinois State Bar Association as a public service. Its purpose is to inform citizens of their legal rights and obligations. Consult your lawyer if you have questions about application of the law in a particular case.