Law Office of Ernesto J. de la Fé, P.A.
Buying and Selling a House:
Here's a Look Behind the Legal Scenes
May, 1995
Few people really know what is going on behind the scenes when they are buying a home. Sometimes all they know is that they liked a particular house and a real estate agent prepared a contract that they signed. Later on, somewhere down the road, there’s going to be a "closing" where they’ll have to sign "all the papers", bring a check for "closing costs", and pick up the keys.
Well, the process of buying a house is complex, and the purpose of this article is to try to shed some light on the goings on "behind the legal scenes.
The first thing we must understand is that a real estate contract must be in writing to be enforceable. Some oral contracts are enforceable in Florida, however, real estate contracts are not among them. So, if John Smith orally agrees to buy your house, and you show up at closing, having moved out and ready receive your cash, Johnny boy can simply tell you he’s not buying, and guess what: you’re out of luck.
It is imperative that you have your attorney review a real estate contract before you sign it. It’s too late to do any good if you wait until after it’s signed. That contract will govern your relationship with the other party until closing, in addition to setting out all of the terms of your agreement.
So, what is "closing" anyway? It’s not just the time and place you go "to sign all the papers". Closing is the finalizing of the transaction. It is the terminating event of the contract. The contract was "opened" on the "effective date", (the date on which the buyer and the seller both finally agreed to all the terms of the transaction). Usually that is the date that the last necessary signature was placed on the contract. Now the contract must be closed so that it no longer exists (as a contract). The sale and purchase is actually taking place at that time.
Contract negotiations are customarily done with several original counterparts of one document. Each counterpart is considered an "original", even though they may have all started out as photocopies of one printed form on which someone typed the terms of the first offer. What really matters is that each counterpart is signed or "executed" as an original, identically to all of the others. By the way, during contract negotiations, the papers may go back and forth several times between the prospective parties. Each time they’ll come back with initialled scratch-outs and new terms being proposed by one party to the other. (Handwritten terms are supposed to govern printed terms.) This keeps going on until until one of the parties either accepts the contract fully as counter-proposed by the other, or completely rejects it. If it is accepted we then have a valid enforceable contract and each party, their attorneys, the lender and the real estate agents each keep one of the counterparts.
When a buyer and seller enter into a real estate contract, each of them acquires certain specific rights and obligations. In order to fully comply, each must take certain actions at specific times, (like applying for a loan, conducting inspections, giving "evidence of title," etc.). If one party fails to meet an obligation, the other party may legally enforce their corresponding right. One of the most significant of the rights obtained under the contract is the right to force the sale if the other party tries to back out. In legal terminology that’s called Specific Performance.
During the pendency of the contract the lawyers must investigate and determine, many things, for example: they’ll examine the title to make sure that the seller is the real and sole owner of the property; they’ll determine whether there are any liens on the property as well as find out the amount of taxes or fees that may be due to the county or city. Taxes, and fees and sometimes insurance will be "prorated" from each of their due dates to the date of closing, so that the parties will be responsible only for their fair portions.
At closing the seller will "deliver" the deed, which transfers title to the buyer. The seller will also give a bill of sale for the "personalty" (the washing machine, lamps, shades, fans, etc.) along with several affidavits, including one on which they swear that they recently have not, and will not, do anything to hinder the title or the property between the time title was examined and the time the buyer will record the deed and other documents after closing.
If the buyer is brrowing money to buy the house, he brings to closing the money that is necessary to complete the transaction and pay closing costs, in excess of the funds they may have borrowed to buy the house. At closing he signs the "note" and the "mortgage". Most people don’t realize that the note and the mortgage are two separate and distinct things. The "note" represents the borrower’s promise to pay back the borrowed funds, while the "mortgage" represents the borrower’s agreement to the terms under which the lender can take away the house or "foreclose" on the property if the buyer doesn't pay the note. So, when people say they’ve "gotta pay the mortgage" they really mean they’ve "gotta pay the note".
Once closing has taken place and the deed, mortgage and affidavits have been recorded, the original deed virtualy loses its value, but the original note and mortgage are kept by the lender until the debt is fully paid off. Upon full payoff the lender will record a "Satisfaction of Mortgage" and send the borrower the original note and mortgage marked "Cancelled".
And then the whole thing happens all over again the day "the Buyer" decides to become "the Seller".
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