Q&A with Ali Alavi, Esquire
Do I need to hire a real estate attorney when I'm closing on a house?
Yes, you should hire a real estate attorney when purchasing a home.
a. You should make sure that the attorney that you are hiring is experienced and focuses on real estate matters.You don't go to a podiatrist when you are having a heart murmur. Hire a real estate attorney and not a litigator for your closing. Hire someone that actively represents buyers, sellers, and banks on an ongoing basis and is up to date with all the new rules and regulations. A real estate attorney is a transactional attorney that negotiates contracts for a living and is available to his/her clients, is someone that is an educator, is not an alarmist, and facilitates your dream of homeownership with keeping your best interest in mind.
b. You should also make sure that the firm that you are hiring has dedicated staff that would be assigned to your matter. This will ensure efficient communication, transparency, and a smooth closure to your transaction.
c. Remember that purchasing a home is one of the largest investments you will make and therefore you want to be adequately represented from the start. Therefore get your attorney involved as early in the process as possible. Have a dialogue with him/her about your Offer to Purchase and the terms of the Offer and make sure that you are avoiding any potential traps.
d. Hiring a real estate attorney is money well spent: You will be asked to sign contracts that can have serious financial and legal consequences and therefore having a competent real estate counsel on your side could save you thousands of dollars and potential grief short and the long term.
i. The seller is not obligated to disclose all the information about the house to you and therefor an experienced real estate attorney can attempt to get as much information and representation from the seller as possible to give you the peace of mind you need to be the new owner of the home.
ii. You will be asked to sign a detailed contract called a Purchase and Sale Agreement. This contract defines what the parties responsibilities and obligations are and should be reviewed in detailed by your attorney. There are pitfalls in the contract that should be negotiated and amended by your attorney in order to limit your responsibility, liability, and risk.
iii. You will be asked to pay an additional deposit when signing the Purchase and Sale Agreement, commonly 5% of the purchase price, and having a real estate attorney on your side will ensure that your money is safeguarded.
What type of insurance will I need when I am closing on my house?
1) The types of insurance that you should be mindful of during the home purchase process can be characterized as follows:
a. Homeowner's Insurance:
i. If you are purchasing a single family or a multi-family home up to four units, you should consult your homeowner's insurance professional to secure adequate insurance on the property.
ii. If you are planning on purchasing a condominium, please be sure to review the condominium documents and confirm that the Master Insurance policy is a "all-in/wall-in policy" and event then you should talk to your insurance professional to secure a "content insurance policy" to safeguard your personal possessions against any loss, damage, or theft.
b. Homestead Insurance: If you are planning on purchasing a home and residing in the home as your principle place of residence you should opt for your real estate attorney to prepare and record a Homestead on the day of your closing. Homestead protection can be broken down as follows:
i. Automatic/Undeclared Homestead: All Homeowners will be protected up to $125,000 by the homestead statute in the Commonwealth of Massachusetts automatically. The protection for automatic/undeclared Homestead protection depends on the tenancy or how you hold title to the subject property.
2. Tenancy by Entirety – each owner is protected up to $125,000, meaning that the Husband OR the Wife can claim the full $125,000 protection, but the protection can never exceed $125,000.
3. Regarding Joint Tenants and Tenants in Common, the allocation of the protection is split in according with their percentage interest in the property as stated in the deed or 50/50.
ii. Declared via a recorded Homestead: All Homeowners will be protected up to 500k provided they record the declaration of Homestead in accordance to provisions of the new Act or had a valid Homestead recorded prior to 3/16/11.
c. Title Insurance: When you purchase a home, you want to make sure that there are no issues with the title. When you hire a real estate attorney to represent you and perform the closing, the attorney will be performing a title search of the property and can issue this policy for you. Sometimes title problems can occur that are not part of the public records or were inadvertently missing from the public record (errors in deeds, mistakes in the title exam, forgery, fraud, or undisclosed heirs to name a few). These problems could limit your use and enjoyment of the property and you can be strapped with thousands of dollars of legal fees to clear the issues. You should be sure to purchase your own policy of title insurance. There are two types of title insurance policies:
i. Lender's Title Insurance Policy: If you are getting a loan, the lender will require you to purchase a title policy for them. This policy does not afford you, the homeowner, any protection. It is a policy that would safeguard the lender in the event that you default of your loan and they have to foreclose on property and there is a title issue. This policy covers the lender only.
ii. Owner's Title Insurance Policy: This is a policy that protects you against any such claims we referenced above. The policy provides assurance that the title company will stand behind you if a covered title problem does arise and they will stand in your shoes and bear the cost and expense of resolving the covered issue. Remember that receiving an Owner's Policy of title insurance is not an automatic part of a closing so be sure to request the policy from your real estate attorney and also note that it is a one-time fee paid at the closing table and you will receive your policy shortly after the closing.