Playing in dirt: residential
real estate law basics

When a panel of ABA experts in residential real estate gathered to share tips and techniques during the recent Annual Meeting, they emphasized that while they could offer an overview, local laws are very specific. They suggested that lawyers interested in learning about their own locations might want to work with a lawyer who has an established real estate practice to avoid elementary mistakes.

The session was presented by the Committee on Career and Practice Development of the Section on Business Law, the Standing Committee on Lawyers Title Guaranty Fund and the Young Lawyers Division.

Panel members included practicing lawyers, insurers and the head of a title company. Each explained his or her role in the real estate process. Elizabeth Bleakley of Chicago gave an overview of the purchase process, from initial contract through closing.

She cautioned that knowing – and meeting – key dates is critical to the success of the deal. Property inspections before the contract is final are essential. She also noted the forms for lead paint declarations, home energy reports and others are important pieces. The lawyer should also check that the address of the property matches the physical description on the contract.

Bleakley said she does not tell her clients how to proceed but does make sure they receive all the information they need to make decisions. For example, she said homebuyers think they can save some money by skipping a home inspection or by not purchasing title insurance. In those instances, she asks them to sign a release saying that she had advised them to obtain a home inspection or purchase title insurance and that they were not doing so against her advice. She notes that when she asks for the release, clients usually decide to follow her advice.

Susan Pesner of Vienna, Va., discussed the federal parts of real estate transactions under the Real Estate Settlement Procedures Act. One of the provisions of the act is the HUD-1 closing statement that delineates credits from the seller and the buyer for the purchase.

She cautioned that since money laundering is a threat to honest people in real estate, if anyone shows up with several thousand dollars in cash saying they did not have time to stop by their bank, the lawyer should call his or her own banker alerting them to a person who needs a cashier's check. Pesner said, “If you take the cash, you will be the one reported for making a cash deposit.”

Richard Patterson, CEO, Connecticut Attorney Title Insurance Company, explained that title insurance is the only insurance that pays out for events that happened in the past. It protects the homebuyer against judgments and liens against a previous owner that stay with the property.

Kathleen Hopkins of Seattle, Wash., talked about some of the quirky things that show up in real estate transactions and gave guidelines on what to watch for. “Make sure the seller whose name is on the purchase agreement is the owner of the property,” she said.

Hopkins also noted that limitations from old deeds should be discussed with the client. “These can be mineral rights, restrictions on livestock or easements,” she said, telling the group about one case where a previous owner held onto mineral rights when selling land. When the current owners wanted to sell gravel, the original owner's grandson turned up and claimed the proceeds.

Homeowners associations require special consideration, she pointed out. The dues for the overall association may be small, but with dues for smaller segments down to a street association covering landscaping, tot lots, refuge removal and other services, the homeowner may end up paying far more than he or she intended.

Hopkins also suggested that lawyers caution their clients about architectural requirements. “Some associations dictate the kinds of mailboxes or screen doors so lawyers need to warn their clients,” she said.

Aurora Abella-Austriaco, Chicago, discussed potential traps in real estate transactions. “Make sure you send out an engagement letter with what the client needs to provide and what you will do. Make sure you docket your deadlines and ask the client to notify you when he or she has completed designated tasks, such as applying for a mortgage or securing a home inspection.”

She said that lawyers need to point out to their clients that any modification to a signed purchase agreement can undo the deal. She also said that condo sales require another layer of review as the buyer needs to understand the financial footing of the association as well as all documents regarding the sale. “Mortgage fraud is rampant. As much as you want to be careful, you really have to see and review everything.”

More information, including the handout material, is available at the Section of Business Law at www.ababusinesslaw.org.

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