Professional Standards Resources

Scenario 1
You, the buyer’s agent, are involved in a difficult negotiation for a buyer. It has come down to a homeowner warranty and the listing agent suggests that the two of you share in the cost. She does not want her seller to know because her seller has not only refused to pay for the warranty, but has also told her that he does not want her to participate in the transaction in any way. She wants to do it “under the table” so that neither the buyer nor the seller knows about what happened. What would you do?

Committee Thoughts: “Under the table” has such a nasty ring, doesn’t it? There’s a reason for that! The buyer’s agent might sweetly suggest that the listing agent tell the seller he can “buy” his house back! If you do decide to split the cost, it must be disclosed to all parties and must appear on the settlement statement. Don’t be tempted just to get the deal done!

Scenario 2
Negotiations are going along rather smoothly on a home purchase when suddenly there is an impasse. The parties to the contract are $2,000 apart and the seller has graciously decided he wants the listing and selling agents to “chip in” the difference. You, the listing agent, are in the business of selling homes, not helping people fund their purchase. The selling agent reacts strongly saying she showed the home under a cooperative agreement in the MLS offering a set amount of compensation to the procuring broker and she knows that if this purchase does not work out (especially in this market), she will sell them something else. As the listing agent, how would you address this scenario with your customer? As the selling agent, what would you say to your client?

Committee Thoughts: The first response from the listing agent to the seller should be that the commission for the sale of the house was negotiated at listing time. This is certainly not the time to renegotiate that deal! As the selling agent, the MLS shows the set amount of compensation, so why should you take a hit on your commission. Both agents should contemplate the “24-48 hour rule” and take a step back from the deal. The listing agent should start showing the property again and the selling agent should start showing the buyer other properties. Time might heal the $2,000 difference between the parties!

Scenario 3
Betty Buyer, the purchaser for one of your listings, is working with Sam Slick (of Slick Loans) to get 100% financing. One of the many calls you receive from Sam is to suggest you convince your seller to increase the sale price and take back a “forgiveable” second mortgage. Sam explains that the appraiser has indicated that the comparables in the area are favorable and allow for a higher mortgage amount if he can justify it through a price increase. What should you do?

Committee Thoughts: Good old Sam Slick! Does this still go on? Committee’s first response was “Run!” Where to begin? The end lender must be aware of the “forgiveable” second mortgage and agree to it! Everything needs to be shown on the settlement statement. It doesn’t matter if that’s the way Sam has always done business! He may not be in business for much longer!

Scenario 4
You get through the crisis in Scenario 3 and when you get to closing, you notice that the final settlement statement does not match the draft you received earlier in the day. The earlier draft showed an entry on the seller’s side for $1,000 in repairs made payable to Rusty Nayls. Betty Buyer and your seller had agreed that $1,000 was to be set aside from the seller’s proceeds, made payable to Rusty, so the work could be done by Rusty after closing. Now, there is no entry for Rusty and the seller’s proceeds are $1,000 higher. The closing agent tells you she has cut two checks to the seller: one for $24,560.35 (the bottom line figure on the earlier settlement statement); and the other for $1,000. The closer asks your seller to endorse the check and make it payable to Betty. Is there a problem?

Committee Thoughts: Is there a problem???!!!! Assuming that Rusty Nayls is a contractor, why isn’t the check payable to Rusty? Does Betty have an uncle who is a handyman, can fix it cheaper and she can pocket the remaining money? If Betty is to receive a check, it must be listed on the settlement statement and must be approved by the end lender. The best thing to do—give Betty a crash course in Loan Fraud 101!

Scenario 5
That wonderful closing day is approaching and you, the listing broker, do not plan to pay the cooperating broker in an MLS-listed transaction, a commission at closing. The cooperating broker demands to be paid saying that he will instruct his buyer not to close. You suggest that the cooperating broker advise his buyer to seek legal counsel concerning any decision not to close and also recommend the cooperating broker seek legal counsel as well! It is the day before closing and the cooperative broker has just received the sample settlement statement and there is no commission listed for him! He circles the commission box, writes a reminder to you….”No commission, no sale” and faxes it to your office. What do you do?

Committee Thoughts: Wow! First, the offer of compensation to cooperating brokers in MLS does not require commission payment at closing. Next, is there a reason the cooperating broker is not to be paid at closing? Maybe the listing agreement provides that the seller will pay the listing agent outside closing? Maybe the deal is a short sale and the listing broker again is to be paid outside closing? Maybe the seller wants the settlement statement to indicate that their obligation to the listing broker has been satisfied completely by making full payment of listing commission owed, per the listing agreement, paid to the listing broker? Maybe the listing broker does not believe that the cooperating broker is the procuring cause? If you are a member of a Board of REALTORS®, regulations state that any commission dispute between brokers must be addressed by the Professional Standards Committee!

Scenario 6
And finally the dreaded final walk-thru the morning of the closing! The seller has moved out and in doing so has managed to tear a large portion of the flooring in the laundry room! The buyer (feeling a little buyer remorse) gets hysterical and wants the floor replaced. The seller, when contacted, says that the entire floor does not need to be replaced, but agrees to fix the tear. How do you handle this situation?

Committee Thoughts: This is best handled between buyer and seller and the very best solution is to get an addendum outlining the situation and fix, let the end lender know about the addendum and show everything on the settlement statement.

We hope these have not been real-life situations for any of you! However, these types of situations do come up on occasion and you need to be prepared to handle them in a legal manner. If a questionable proposal is made to you or your client, always remember that an attorney experienced in real estate issues is the best source of information regarding your specific situation. So, protect yourself by seeking legal advice. In closing, we offer this succinct thought…perhaps a golden rule! If it’s not on the settlement statement and hasn’t been approved by the end lender, there’s a problem!

June 2007
REALTOR/Lawyer Committee
Filisha Norman, CABR Chair
Sarah McDaniel, CBA Chair

All duly executed deeds accomplish the transfer of the grantor’s interest, but each type varies greatly in the extent to which the grantor protects the grantee by guaranteeing good title through covenants and warranties. On one end of the spectrum is the general warranty deed – offering near total protection. On the other is the quitclaim deed – offering almost no protection.  The menu of covenants and warranties has been developed over the centuries through use of common law formulas which, when incorporated into deeds with the correct language and in the correct combinations, will produce the various common law deed types, or “long form” deeds.

The most common deed types are the General Warranty Deed, Limited Warranty Deed,  Fiduciary Deed, and Quitclaim Deed.

Once the correct type of deed is selected, and the selection is made part of the contract, how is the Buyer to recognize the instrument given to him at closing as the type of deed specified in the contract?   Fortunately, the Ohio legislature has simplified this area of the law in codifying types of common law deeds and by providing “statutory short forms” as a format for lawyers to use in drafting them.  In addition, Revised Code Chapter 5302 provides the “short form” language to designate the type of interest granted to co-tenants, where the survivorship feature is desired.

Beginning in August 2000, a mechanism was established to designate a statutory “Transfer on Death” provision. It should be noted that this mechanism has been modified, with the latest provisions effective in December 2009.  Fortunately, Revised Code §5302.24 validates “transfer on Death” designations that were valid under the law effective as of the date they were executed and recorded.

Before reviewing the deed types and the recent amendments, it is important to recognize that title is defined as ownership, while the deed is the instrument that transfers ownership.  Also, one needs to distinguish between “good” title referring to ownership and “marketable” title referring to that which a willing buyer will purchase in an arm’s-length transaction without compulsion. The Statute of Frauds requires every deed to be in writing, but deeds, unlike negotiable instruments, are non-assignable, so each and every conveyance (except those that arise by operation of law) requires a new deed signed by the appropriate grantor.  The most common interests that arise by operation of law are those acquired by survivorship, statutory dower and adverse possession.

Ohio Revised Code Chapter 5302 prescribes statutory forms for the following deed types.  Although, the common law “long forms” are still sufficient, the statutes provide that the use of these “short form” deeds will produce the transfer of title, in accordance with the definitions provided in the Chapter.

General Warranty Deed (R.C. §5302.05). The general warranty deed is the standard sought by purchasers in arm’s-length transactions because it not only conveys all of the grantor’s right, title and interest, legal and equitable, in and to the described real property – but also it guarantees the title from all previous transferors in the chain of title.  Specifically, the grantor covenants that: (1) he has title and owns the property; (2) he has power and authority to convey; (3) the property is not encumbered (e.g. mortgages, liens, easements); (4) the grantee’s possession and quiet enjoyment will not be disturbed by a claim of superior title; and (5) the grantor will defend the grantee against all claims regarding the title that exist as of the date of the conveyance.   In determining the protection offered, the grantee must be aware of any limitations (e.g. exceptions or reservations) to the title, as recited in the deed language, because regardless of deed type, expressed title limitations lessen the scope of that which is warranted.   As a word of caution, the acceptance of a General Warranty Deed is not a substitute for title insurance, and the grantee needs to understand that, as with any other contractual representations or warranties, there are practical limitations to enforcement of the deed representations and warranties, such as the grantor’s subsequent bankruptcy or disappearance.

Limited Warranty Deed (R.C. 5302.07).  Under the limited or special warranty deed, the grantor warrants only that the grantor has done nothing to create a defect in or a dilution of the title.  Thus, unlike the general warranty deed, the protection offered does not extend backward through the chain of title.

Fiduciary Deed (5302.09). The fiduciary deed is used to transfer real estate from a grantor who is a fiduciary – one who is put in a position of trust – to include executor, administrator, trustee, guardian, receiver or commissioner. Generally, the fiduciary warrants only that he or she is duly appointed and acting within his or her authority. In other ways, the fiduciary deed is similar to the quitclaim deed.

Quitclaim Deed (R.C. 5302.11).  The quitclaim deed is often used in other than arm’s-length transactions where the parties are concerned more with the transfer itself than the protections offered to guarantee the extent of that title. Under the quitclaim deed, the grantor transfers whatever title the grantor actually possesses (whether that interest is total, partial or nonexistent) – the grantor gives no warranties or guaranties as to that title.  Some common situations calling for a quitclaim deed are domestic relations (divorce, dissolution), probate (estate matters) and gifts.  Given that a quitclaim deed offers no protection, case law has pronounced that a purchaser is deemed to be on notice of potential title defects by accepting it. See, Finmore v Epstein(1984), 18 Ohio App.3d 88. Before using a quitclaim deed as a means of conveyance, both the grantor and grantee should obtain legal advice as to the consequences involved, including the effect such conveyance may have on prior owners’ title insurance coverage.

Survivorship Deed (R.C. 5302.17).  This section provides the statutory language for the automatic transfer of title to the surviving grantee, often a spouse or a sibling, upon the death of the other grantee.  This type of deed defines the interest obtained by grantees who become co-owners, who each immediately become owners of an undivided fractional interest during their lifetimes.  On the death of each co-owner, his or her fractional interest passes by operation of law to the surviving co-owner(s), until the last to survive becomes the sole owner in fee simple.  As set forth in Revised Code §§5302.19 and 5302.20, a conveyance to one or more grantees, separated simply by the words “and” or “or” will create a tenancy in common, which means that the share of each co-owner will pass upon his or her death through the probate process.  Use of the statutory survivorship deed form, or use of alternative wording that “shows a clear intent to create a survivorship tenancy” is necessary to invoke the survivorship feature.

Transfer on Death Designation (R.C. 5302.22).   This transfer on death mechanism was added to the statutory framework in August 2000, originally through use of a “Transfer on Death Deed.” Under the current law, as amended effective in December 2009, the “Transfer on Death” designation is accomplished by the execution and recording of an Affidavit. The statutes provide this mechanism to name a beneficiary or beneficiaries to “inherit” the property upon the death of the current owner(s).  To achieve the same result, the owner would have either formed a trust to hold title to the property, designated the beneficiary for transfer at death outside of probate, or provided for devise by will, through the probate process.  This relatively new Transfer on Death designation allows the owner to avoid the expenses of both formation of a trust, and probate. Use of the Transfer on Death Affidavit differs significantly from the Survivorship Deed, in that the named beneficiary acquires no immediate interest in the property, and the beneficiary’s status may be revoked by the owner at any time during the owner’s lifetime without the consent (or knowledge) of the beneficiary.  The beneficiary may be removed or replaced at any time during the owner’s lifetime, upon execution and recording of a new affidavit by the owner.

The statutory deed forms are updated from time to time by the legislature, and the current versions should always be checked.  Effective February 1, 2002, the requirement for witnesses to the grantor’s execution of deeds has been eliminated, and the forms contained in Revised Code Chapter 5302 have been revised, accordingly.

Although the short form language of the various deed types may be found in and copied from the Revised Code, the parties to the real estate transaction are well advised to consult with a lawyer as to not only the selection of the deed type which best fits the circumstances of the parties, but also as to whether the statutory form fulfills any special circumstances without modification.

 

Date:  February 12, 2002, revised April 15, 2013

John E. Stillpass

John E. Stillpass, Attorneys at Law

www.stillpass.com

Joint Committee Cincinnati Bar Association/Cincinnati Area Board of Realtors

Lead is a highly toxic metal that can attack the central nervous system when inhaled or ingested and is considered to be one of the major environmental concerns in residences,

commercial buildings and work places. Negative effects of lead-based paint are most detrimental to children, fetuses and women of childbearing age. Although the use of lead-based paint ceased in 1977, according the Department of Housing and Urban Development (HUD), more than three quarters of the homes built before 1978 contain some lead-based paint.

Real estate professionals historically have kept an eye on environmental issues that affect ownership of private property. Lead-based paint is one such issue. Title X is consistent with NAR’s policy to disclose all material property defects. The rule requires those selling property built before 1978 to disclose the known presence of lead-based paint or lead paint hazards. It also requires sellers to distribute a federal lead hazard information pamphlet, obtained through the National Lead Information Clearinghouse, before any purchase offers can be accepted. (Note: When a property is being purchased with a loan backed by FHA, there is an additional form that must be provided to the buyer). This rule will encourage both the seller and the buyer to explore possible existing environmental hazards on a property before a transaction occurs. And, it could go far toward eliminating lead as a health problem for future generations.

Specifically, the new EPA/HUD rules state that:

1. Sellers and landlords must disclose known lead-based paint hazards and provide available reports to buyers or tenants.
2. Sellers and landlords must give buyers and renters the EPA/HUD/Consumer Product Safety Commission pamphlet titled, “Protect Your Family From Lead in Your Home.”
3. Home buyers will get a 10-day period to conduct a lead-based paint inspection or risk assessment at their own expense, if desired. The number of days can be changed by mutual consent.
4. Sales contracts and leasing agreements must include language to ensure that disclosure and notification actually take place.
5. Sellers, lessors and real estate agents share responsibility for ensuring compliance.

Title X requires no testing, removal or abatement of lead-based paint and does not invalidate leasing and sales contracts. But, if any lead hazards are found, the law does not prevent the two parties from negotiating hazard reduction as a contingency. This will be handled in the same way as any other housing defect.

Effective dates for compliance are: September 6, 1996, for dwellings of more than four units, and December 6, 1996, for dwellings of one to four units. Certain properties are exempt from the rule, including properties that are leased for 100 days or less without the possibility of renewal or extension. Penalties for noncompliance are quite severe and can range up to $10,000 for each violation and imprisonment for up to one year.

Questions about lead-based paint may be directed to the National Lead Information Center at 800-424-LEAD (5323). The Center can provide you with the above-mentioned pamphlet as well as sample disclosure forms, copies of the new regulations and much more. Additional information can be found at www.epa.gov.

Date: May 15, 1998

Since July of 1994, when seven year old Megan Kanka of Hamilton, NJ was raped and murdered by a convicted sex offender who lived in her neighborhood, states have been adopting laws for community notification of sex offenders.

Ohio’s Sex Offender Registration and Notification Law, HB 180, was adopted in 1996 with an effective date of July 1, 1997 for the registration and community notification provisions. Ohio’s Megan’s Law was amended by Senate Bill 175, which became effective on May 7, 2002

HB 180 requires individuals convicted of a sexually oriented offense to register with the local sheriff’s office within 7 days of establishing residence in a county. The sheriff will notify the Bureau of Criminal Identification and Investigation (BCI). BCI will include this information in the State Registry of Sex Offenders and also notify the FBI. The offender must notify the sheriff of an address change and must periodically verify their current address. The registration requirement will last from 10 years to life depending upon the offender’s conviction.

The notification requirements of HB 180 applies to all sexual predators and to habitual sex offenders where the sentencing judge imposes the public notification requirement. If the offender is subject to the notification requirements the sheriff is required to notify the victim (if requested by the victim) of the offender’s address or change of address notification.

The offender is required to provide written notification to the sheriff of the offender’s intent to reside in the county at least twenty days prior to the date the offender actually moves in. Local law enforcement will also receive the notice.

The sheriff is also required to give community notification by providing written notice within 72 hours to residences within 1,000 feet of the offender’s residence or intended residence. The sheriff is also required to provide written notice within 7 days to all of the following who fall within the school district the offender resides in:

1. Executive director of the public children services agency
2. Superintendent of the school district
3. Hiring officer of each chartered nonpublic school
4. Director of each preschool
5. Administrator of each child day-care center
6. President of each college or university

The written notice provided by the sheriff will include the offender’s name and address, the offense for which the offender was convicted and state that the offender is a sexual predator or habitual sex offender. HB 180 provides that the written notice is a public record and is open to inspection under Ohio’s Public Records Law. Anyone should be able to obtain information from the local sheriff’s office regarding registered offenders in the area.

HB 180 does not address a property owner’s or real estate licensee’s duty to disclose to a tenant or buyer that a known sex offender lives in the neighborhood. It is impossible to say with certainty how a court would rule on this disclosure issue as some decisions state that information of public record does not have to be disclosed and other decisions indicate that this could be found to be material information that should have been disclosed. Due to this uncertainty, if the property owner has been notified by the sheriff, the cautious approach would be to disclose this information to the buyer or tenant. Of course this issue and the brokerage disclosure policy must be discussed with the property owner and consented to. If the property owner does not consent, the broker must decide whether to comply with the owner’s request not to disclose or decline to sell/rent the property due to the possible risk involved.

To facilitate the seller’s disclosure of notice received under HB 180 and the buyer’s awareness of a sex offender’s requirement to register with the local sheriff, a sex offender provision can be included in the Contract to Purchase, Exclusive Right to Sell Agreement and the Buyer Agency Agreement. These provisions are not required by HB 180. However, they provide Realtors® with a means to notify the seller and buyer of the Sex Offender Registration and Notification law and to address the disclosure issue.

It’s important for Realtors® to understand that prospective buyers are the ones who should be doing the offender research, should they desire. If the Realtor® gets involved, it could result in potential liability problems, as with any disclosure issues relating to the property.

Information on local registrations for sex offenders can be obtained through Internet access at the following sites:

• Butler County Sheriff: http://www.butlersheriff.org
• Clermont County Sheriff: http://clermontsheriff.org
• Hamilton County Sheriff: http://www.hcso.org
• Highland County Sheriff: http://www.highlandcoso.com
• State of Ohio: http://www.drc.ohio.gov/OffenderSearch/Search.aspx
• State of Kentucky: http://kspsor.state.ky.us/

Use the information below as a guide for navigating the real estate purchase agreement. And remember, whenever there is an issue that you do not understand, consult your attorney.

Property Description

This may sound simple enough, but believe it or not, an error can be made in this section of the purchase agreement. Be certain that the property address and/or other legal description of the real estate for which you intend to place an offer is correct. This is especially important in the purchase of a lot in a development. A simple error can make you the owner of lot you did not intend to own.

Price and Terms

This should be written in both numeric and alphabetic terms to avoid any confusion as to the intended purchase price.

Earnest Money

Earnest money is NOT always refunded to the buyer in the event the purchase does not materialize. You must read the clause in its entirety and be certain you understand its intent. Not all purchase agreements use the same language.

Financing Contingency

This contingency is to provide the buyer the opportunity to secure financing prior to being committed to proceeding with the purchase of the real estate. The specific terms written into the contingency must be considered carefully, as they will be the basis for the buyer’s obligation to proceed in the event financing of the purchase becomes difficult. Attention must be paid to the type of loan, maximum rate, and minimum number of years the buyer will be required to accept to finance the purchase. Further, the buyer must act in good faith in seeking financing for the real estate. Failure to make a diligent effort to obtain the type of financing specified in the agreement may result in a finding of breach of contract on the part of the buyer.

Property Insurance

Property insurance rates can vary widely depending upon various factors. Insurance companies may use property history, buyer insurance score, credit score, Comprehensive Loss Underwriting Exchange (C.L.U.E.) Reports, etc. in determining the cost of insurance for a property. Buyers should investigate the factors their insurance company will use when quoting insurance. Ask specific questions about these possible factors and, if a CLUE Report is used by your insurance company, consider making the offer to purchase the property contingent upon the Seller providing a copy of the report to the Buyer, so the Buyer can pass it on to his/her insurance company for review.

Appraisal Contingency

Unless the purchase agreement so states, the buyer is not relieved of his/her obligation to proceed with the sale of a property that does not appraise for an amount acceptable to the buyer. If the standard agreement does not contain such a contingency, you may want to consider adding such a clause.

Inclusions/Exclusions of Sale

Sometimes there is a dispute over what items are actually being sold with the real estate. A clause that lists several items as being part of the sale is NOT all-inclusive. While there are many items specifically stated in the purchase agreement as being included in the sale, the legal definition of real estate covers many more things that are not specifically mentioned. The examples listed are included as a means for clarifying many items that are sometimes unclear to untrained buyers and sellers and are typically a part of the real estate. A simple question that is sometimes used in determining whether something is required to remain with the property is: “Do I need a tool to remove it?” If so, it likely falls under the definition of real estate as an “improvement” or “fixture”. If there is an item listed that is questionable and the seller does not want to leave it with the property, it is advisable that the item be stricken from the list.

Personal Property

This section is to be used to negotiate items that are not part of the real estate, by definition, that the buyer would like the seller to leave with the real estate. It is important to consider that some of these items may have sentimental value to the seller and could be a point of conflict in the negotiation process. Therefore, it is recommended that buyers carefully consider any requests they wish to make with regard to personal property. Also, if too many items, or too expensive of items, are included in the purchase price, the buyer may not be able to obtain a loan due to appraisal issues. NOTE: If a seller offers to include items of personal property on the MLS listing, the buyer must still include this in the purchase agreement. The MLS listing is not a part of the contract and the seller will not assume that the buyer wants these items. Further, the seller is usually obligated to remove all personal possessions not included in the contract prior to occupancy by the buyer.

Sellers Certification

This section is to be used for providing information to the buyer with regard to certain KNOWN issues about the property. It would be prudent for a buyer to make his/her own inquiries with regard to any of the issues contained in the certification clause that are of concern to him/her. This can be done prior to making an offer, or even considering an area, in some cases.

Homeowner Association/Condominium/Landominium Declaration, Bylaws and Articles

Some properties are subject to regulations specific to the community/development in which they are located. A seller should be prepared to gather this information and make it available to a buyer upon receipt of an offer. Further, a buyer may choose to make his/her own inquiries with regard to a community prior to viewing properties, thus narrowing the property search area. Buyers of these types of properties should include a contingency to the offer that requires the Seller to provide such information.

Offsite Conditions

A buyer may elect to investigate into area conditions such as crime statistics, presence of registered sex offenders, development, local regulations, etc. prior to beginning his/her property search. However, if the buyer has not yet done so, a contingency can provide the opportunity to conduct such investigation. If the prospect of a registered sex offender living in the area is of concern to a buyer, he/she should familiarize himself/herself with Megan’s Law and become informed on its provisions and limitations.

Maintenance

This section defines who is responsible for maintaining the real estate until possession is granted to the purchaser. Language and direction of responsibility can vary between contracts and therefore should be carefully reviewed prior to entering into an agreement.

Real Estate Inspection Contingency

Most buyers want to have the obligation to proceed with the purchase of real estate contingent in some manner upon the results of a property inspection. The terms of this type of contingency can vary widely from one contract to another. Some contingencies provide that the inspection must be satisfactory to the buyer. Others provide that if the buyer is not satisfied with the results of the inspection due to material defects, the buyer and seller will negotiate as to the disposition of those defects. Be certain to review this contingency carefully to ensure that it meets your needs. And remember, if the contingency does not require negotiation, the seller has no obligation to consider requests from the buyer to make corrections. And, the buyer’s only option may be to void the contract and absorb the cost of the inspections.

Lead-Based Paint Inspection

This contingency is intended for use when making an offer of property built prior to 1978. If a buyer is considering properties built prior to 1978, it is recommended that he/she review the pamphlet Protect Your Family From Lead in Your Home and any other publication deemed necessary prior to viewing these properties. That way, the buyer will have an understanding of the lead-based paint issue and will be better prepared for making an offer and deciding whether or not they wish to select a lead-based paint inspection.

Termite and Wood-Boring Insect Inspection

Sometimes a buyer elects to have a separate inspection conducted for termites and other wood-boring insects. The terms of such inspection are defined in this clause. Further, some loan programs require this inspection. Buyers should inquire into this requirement when discussing different types of loans.

Home Warranty Program

Home warranty companies offer various types of programs for the purchase of real estate. Buyers should investigate the benefits of these programs and be prepared to make a decision as to whether they want to include a home warranty in the purchase agreement, or possibly purchase one on their own, outside the purchase agreement. NOTE: If a seller offers to provide a home warranty on the MLS listing, the buyer must still include this in the purchase offer. The MLS listing is not a part of the contract and the seller will not assume that the buyer wants the home warranty they have offered to provide if they have not requested it.

Conveyance and Closing

Transferring real estate from one owner to the next requires coordination and cooperation between the parties, the lender, title company and REALTORS® involved in the sale. There are many documents to be signed and fees to be paid to facilitators of the closing, government agencies, etc. The buyer and seller agree through this clause to execute all documents required to facilitate the transfer and to pay the fees necessary for conveying title. Some of the fees charged to facilitate the transfer are to the buyer (to take care of services specifically provided for the buyer) and some are charged to the seller (to take care of services specifically provided for the seller). Sometimes the parties are confused as to why they are being charged specific fees. The seller is required, per contract to convey title as described in the clause. If there are legal issues that need to be addressed in order for the seller to make such conveyance, the cost of addressing those issues will be charged to the seller. It is important to read and understand the specific language contained in the contract you sign so you will not be surprised when you see a charge on the closing statement for a service you were unaware would be necessary in order to fulfill your obligation under the terms of the contract. Further, this clause addresses the date by which the paperwork is to be completed and conveyance is to occur. It can also provide the opportunity for the seller to indicate any issues associated with the title that will be conveyed to the new buyer.

Title Insurance

There are 2 types of title insurance. The first type is lender’s title insurance. This insurance protects the interest of the lender with regard to the real estate. The second type of title insurance is owner’s title insurance. This type of insurance is designed to protect the buyer for losses caused by defects in the title. Buyers should inquire about the benefits of owner’s title insurance from a title insurance agency or provider prior to entering into a contract, but no later than closing.

Prorations

There are many fees associated with ownership of real estate that are annual, semi-annual or perhaps spread out over a certain number of years. This section addresses the fees that will be transferred along with the real estate and who will pay for those fees on a pro-rated basis.

Possession and Occupancy

This clause identifies the date that the seller will vacate the property and what obligations/rights the seller has with regard to utilities, rent, and condition of the property after vacating. It is important to remember that a change in closing date can affect the ability to provide/accept occupancy as indicated in the original purchase agreement. If there is a change to the closing date, the occupancy date must also be reviewed to determine if there is a need to also make an amendment to that date. Failure to do so could cause a seller to have to vacate the property in less time after closing than he/she had planned. Or, it could leave a buyer in a “homeless” situation, if they needed to have occupancy by a specific date. There is no set rule as to when occupancy must be granted. Some sellers provide occupancy at closing. Others need time to facilitate their own move and may request several days, a month or even longer. The amount of time a seller will have to occupy the property after closing is negotiable between the parties.

Sole Contract

This clause serves to remind all parties that all agreements must be in writing as part of the contract. If a request is made and agreed upon verbally, it must be put in writing and signed by all parties. Don’t leave anything to memory or disputable interpretation of intent. Put everything in writing so there will be a clear understanding of all agreements. Further, this clause often defines other legally binding situations.

Expiration and Approval

This provides the maximum time that the seller has to act on the offer. In the event the seller cannot be reached within the time-frame specified, the listing agent should notify the selling agent and a written extension should be obtained. If the buyer decides to rescind the offer prior to the expiration, he/she may do so as long as the offer has not already been accepted.

Action by Seller

The seller has the option of either accepting a buyer’s offer, submitting a counter-offer to the buyer, rejecting the offer or allowing the offer to expire without responding. If the seller chooses to submit a counter-offer, an expiration deadline must be included. The listing agent should attempt to have the seller respond to all offers in writing. However, if a seller chooses to not respond to an offer in writing, the listing agent should contact the selling agent and so advise. All sellers of the real estate must sign the agreement.

Occupancy provisions vary in different parts of the country. In some areas, it is the norm for the buyer to be given occupancy at the closing. In other areas, the seller retains occupancy rights for as much as 30 days after the closing. In Cincinnati, both ends of this spectrum and everything in-between is possible. As with all terms of the sale, occupancy should be specifically detailed in the Contract to Purchase.

It is easy to understand the buyer’s anxiousness to gain occupancy rights on his/her new home. After all, the buyer is probably paying a mortgage as of the closing date, so allowing the seller to retain occupancy is effectively costing the buyer money. Many buyers want occupancy at closing.

On the other hand, the seller is concerned about making final arrangements to move out before he/she has money in hand from the sale. It is worrisome to think about something coming up at the last minute that might cause the closing to unravel, but still have moving arrangements completed. Many sellers want some time after closing before giving up occupancy.

Obviously, there is no “one answer fits all” on the occupancy issue. It is best for each party to the contract to empathize and work toward a mutually satisfactory compromise. Unless the property is already vacant, the seller will probably appreciate a little time after closing to move out, even if they must pay the buyer an agreed rental amount for the time from closing to occupancy. In some cases, it is also important to specify a “time” of occupancy on the agreed-upon date in order to facilitate the seller’s “move out” and the buyer’s “move in.”

If a seller is to continue occupancy after closing, it continues to be the seller’s responsibility to pay for all utilities for the length of time he/she remains in the residence and to maintain the property in the same condition as agreed in the Contract to Purchase. The seller should also consult with his/her insurance agent regarding the continuance of homeowner’s insurance during the period between closing and occupancy based upon the responsibilities as designated in the Contract to Purchase. Further, the seller may also be responsible for damages to the buyer that may occur because of failure to deliver possession of the house on the agreed upon date.

As with all issues in a Contract to Purchase, specific terms should be spelled out in writing. Your REALTOR® will guide you through the process.

Date: May 15, 1998

The Ohio Residential Property Disclosure Form requires the seller to indicate any known problems or defects regarding a variety of features and structural aspects of the home. The original form required information on the water supply, sewer system, roof, basement, structural components, mechanical systems, termites, presence of hazardous materials, drainage, code violations and wells. The new form added boundary lines, encroachments, shared driveway/party walls, flood plain, Lake Erie Coastal Erosion Area, zoning violations/nonconforming uses, assessments, homeowner’s association, historic building district, fire/smoke damage, water intrusion/mold and water quantity. It also added shared well as a source of water supply and built in appliances as a mechanical system. In some cases, the seller must indicate known problems or defects during their ownership. In other cases, the Ohio Department of Commerce has placed a five-year limit on the required disclosures. It is important to read each statement on the form carefully to ensure its meaning is understood.

The form also contains a statement that the owner is not making any representations regarding offsite conditions and that the buyers should exercise their own due diligence to investigate such matters. Information is also included about Megan’s Law and the form also states that the buyer assumes responsibility to check with the sheriff’s office for such information.

While the completion of the form by the current sellers is required, they are only asked to indicate conditions as they know them. The legislation does not require sellers to incur the expense of having a professional inspection done nor are they required to further investigate any aspect of the home mentioned on the form of which they have no actual knowledge. If the sellers do not know about the current condition of any item included on the form, they may so indicate.

Also, there are exclusions to this law. The Ohio Association of REALTORS® has developed a chart that lists the most common transactions on which you need the form and the ones on which you don’t. For complete details on its required use and exclusions, the above link to the O.R.C. can assist.  Further, sometimes a seller believes that the form is not required for the real estate.  In that event, OAR has an optional form that can be used in lieu of having the seller cross through each page and writing “exempt” on the form, which is a practice many REALTORS® follow.  The form that has been developed by OAR for its members’ exclusive use can be accessed by clicking here.

If a seller is uncertain as to whether any of the listed exclusions apply, legal counsel must be sought for advice.  The REALTOR® cannot make the determination.

There is no regulatory agency to provide enforcement of this law. Rather, if the sellers do not comply with the requirements of the law, the buyer has the right to rescind the contract. The law requires the seller to present prospective buyers with the completed and signed form as soon as practicable or before an offer to purchase is made. The buyers must acknowledge receipt of the form by returning a signed and dated copy of the form back to the seller.

The buyer has the right to rescind the contract under the following circumstances: If the buyer makes an offer prior to receiving the form, the buyer has three (3) business days after the date on which the form is received to rescind the purchase contract. However, this rescission right must be exercised within 30 days from the date the Contract to Purchase was entered into or until closing, whichever occurs first. Also, if the seller never provides a disclosure form to a prospective buyer, the buyer has the right to rescind the purchase contract for 30 days from the date the Contract to Purchase was entered into or until closing, whichever comes first. The same rescission rights apply to amended disclosure forms that are provided after the Contract to Purchase has been entered into.

Whether the Property Disclosure Form, or an amended form, is given late or not provided at all, once the transaction closes, no rescission rights exist. In this case, the best course of action for a buyer who discovers a defect in the property which was not disclosed is to contact an attorney.

REALTORS® cannot actually help sellers fill out the form; however, they can answer questions about the form itself and the process. If a seller is unsure as to how a particular section of the form should be completed, it is suggested that he/she seek the advice of legal counsel.

Date: April 18, 2014

So, how many people does it take to sign a listing agreement in the State of Ohio? That depends. A competent listing broker will sign the listing agreement and demand that anyone who has an interest in real estate as the owner sign the listing agreement. Obvious examples would include anyone “of record” as an owner of the property and likely are the people on the instrument of ownership, i.e., the deed. Husband and wife whether or not they are currently together and whether or not they are both on the deed is the most common example.

As a good course of practice, ask for the authority document or resolution identifying the person(s) with authority to sign on behalf of the entity. One party may designate another to act on his/her behalf. The most obvious example is the limited power of attorney signed by the person granting power to another person. You should always confirm that this document was signed in the presence of a notary. Generally, real estate held in a trust requires the owner to sign as trustee on behalf of the trust. Other examples include general partner in a general partnership, general partner in a limited partnership, managing member in a limited liability company, and officer in a corporation.

The most common example in residential real estate is property owned by a husband and wife. What is the effect of only one spouse’s signature on a listing agreement when both spouses own the property? Well, the answer could be no effect. The non-signing spouse might later consent through words or actions, attend the closing, sign the deed to transfer his/her ownership interest, pay a commission—life is good and you as agent are very fortunate that you were not penalized for not paying attention to important details.

Or the answer could be very bad and any or all of the following could occur. The non-signing spouse files an action at the Ohio Division of Real Estate and/or the Cincinnati Area Board of REALTORS® claiming, among other things, the violation of Articles 1 and/or 9 and/or 12 of the Code of Ethics and Standards of Practice of the National Association of REALTORS® by failing to protect and promote their interests as a client and/or by failing to provide copies of signed documents expressing the specific terms, conditions, obligations and commitments of the parties and/or by failing to obtain the proper authority to sell or advertise property for sale.

In addition, the non-signing spouse may refuse to sell his/her interest in the property. Since all fee owners must be parties to a contract, the non-signing spouse is not bound by the contract. The lack of signature constitutes a valid defense to the enforcement of the terms of a real estate purchase agreement by the buyer. The buyer may have different causes of action against the seller(s), the listing broker, and/or the selling broker. The selling broker may have a cause of action against the listing broker for the payment of the cooperative portion of the real estate commission as offered by the listing broker to the selling broker through the multiple listing service.

My recommendation to avoid potentially big messes and wasted time and expenses for the careless listing broker is simple; ask the right questions at the time of listing and have all parties who have an interest in the real estate sign the listing agreement.

1 The information presented in this article is not intended to be—and should not be construed as—legal advice. Greg Tassone is a Realtor® in Cincinnati, Ohio who also happens to be a licensed real estate attorney and member of the CABR/CBA REALTOR®/Lawyer Committee.

What is an Insured Closing?

Insured closings through a Licensed Title Agent involve two components. The first deals with the title to the property and title insurance issued for the state of the title. The second component deals with the handling of funds and documents by the licensed title agent. A title insurance policy does not cover losses due to the mishandling of funds or documents by the Licensed Agent, but Closing Protection Coverage does.

So, what exactly is Closing Protection Coverage?

Closing Protection Coverage is available when title insurance is being issued to a lender or to another party, such as the buyer/borrower. Subject to certain conditions and exclusions specified in the Closing Protection Coverage form, the protection covers:

1. Losses due to theft, misappropriation, fraud or other failure for the licensed agent to properly disburse settlement, escrow or closing funds; and
2. Failure on the part of the licensed agent to comply with any applicable written closing instructions, where the closing instructions have been agreed to by the licensed agent.

Who can ask for Closing Protection Coverage?

Closing Protection Coverage is available to the lender, buyer/borrower/seller/other party to the transaction. The Notice must be given to the parties (for example, the seller and buyer) at time the title request is placed with the Licensed Agent. The cost will appear as a separate line item on the HUD and the whole cost is remitted directly to the licensed agent’s underwriter.

Are there items excluded from Closing Protection Coverage?

There are some exclusions and conditions. They include:

1. loss or impairment of your funds due to bank failure, insolvency or suspension unless the licensed agent fails to deposit the funds in the bank specified in the closing instructions.
2. liability to a covered buyer, borrower or lender is limited to the amount of the applicable owner’s or lender’s policy of title insurance
3. liability to a covered seller is limited to actual loss of funds and shall in no event be greater than the gross sale price due to the seller in the covered transaction
4. notice to the Company generally needs to be given within one year from the date of Closing.

Closing Protection Coverage is one part? What does Title Insurance do for me?

Two of the most common types of title insurance are lender’s title insurance and owner’s title insurance. A lender’s policy may be required by a mortgage company or bank when a loan is secured and covers the lender up to the amount of the mortgage for certain title issues. An owner’s policy may be purchased by an owner and covers the owner for certain title issues generally up to the amount of the purchase price. While the lender may require the owner to purchase title insurance on the lender’s behalf, owner’s coverage is voluntary on the part of the buyer.

Doesn’t the title company perform a title search before the closing? Why would I need to have title insurance?

A title search establishes the conditions that must be met before a title insurance policy is issued and also provides information on current ownership and encumbrances affecting the property. The search involves research into the records of the county auditor, recorder, clerk of courts and probate court and may also involve searches of the sheriff’s records and federal records such as bankruptcy. A title insurance policy protects the insured against title defects, liens and encumbrances existing as of the date of the policy which are not excepted from coverage. For example, a lender’s policy will insure that the lender’s mortgage is the first and best lien on the property. It will insure the lender in the event of fraudulent or improperly signed deeds, unpaid taxes, or any undisclosed hazard or risk that is not revealed by the recording system.

My lender is asking me to buy a lender’s policy for the loan? Does that cover me?

It is important to understand that a lender’s policy of title insurance does not protect the buyer—only the lender. The coverage for the lender decreases as the loan is paid down and once the loan is paid off, the lender’s insurance is no longer in effect.

That is why many homeowners choose to purchase an owner’s policy of title insurance. This policy protects the home buyers even after they sell the property.

Owner’s title insurance usually guarantees that the insurer will pay any legal fees for defending against challenges to the title and will pay any valid claims. Even if an attorney has performed a title examination for your buyer and has assumed liability for the work, an owner’s title insurance policy could be a good idea. An independent attorney’s liability is limited to negligence and does not include responsibility for hidden title problems.

How much does it cost for title insurance?

Owner’s title insurance is a one-time fee, paid at the time of purchase and can usually be included in the closing costs. Ask your REALTOR® to direct you to the proper closing agent to assist you in the purchase of owner’s title insurance. Most agents can recommend a list of reputable, experienced insurers. In Ohio, the price of title insurance is set by the Department of Insurance. However, there are different levels of coverage, so you will want to ask about the benefits of each level and determine which is best for your situation.

I’ve heard about a homeowner’s policy. Does that provide more coverage than a regular owner’s policy? Does it cost more?

In the late 1990′s, most national underwriters began offering expanded coverage policies for residential homeowners and lenders. For an additional premium, the ALTA Homeowner’s Policy provides coverage against losses from zoning violations, subdivision law violations, improvements that encroach into an easement, building permit violations, violations of covenants, conditions and restrictions, lack of vehicular and pedestrian access, supplemental assessments arising as a result of construction or transfer prior to the policy date and damage to the home caused by someone with easement rights.

The expanded policies are unique since they take on risks that cannot be eliminated or minimized by a thorough search of the public records or by a careful inspection of the property. They provide for certain post-policy coverage such as a fraudulent deed executed after the insured acquires title to the property. They set caps and deductibles for several of the new coverages. Additionally, the expanded policies provide for a continuation of coverage for insureds who transfer the property to their intervivos trust. Absent a continuation as a result of warranties of title or the purchase of an endorsement, if available, and prior to the expanded policy, coverage was lost if an insured transferred title to his/her intervivos trust because the transfer was not due to an “operation of law”.

The expanded coverage also provides for a ten percent increase in coverage value during the first five years and up to 150% of the initial policy amount to cover increases in value due to inflation. The increases are not tied to actual inflation rates and do not require that the property increase in value over the five-year period.

If a lender’s policy and owner’s or homeowner’s policy are all desired for one transaction, does that mean that there are double premiums and overlapping coverage? How are the premiums determined?

The costs for title insurance are set by the state. If a lender’s policy of title insurance is the only insurance purchased for the transaction, it will insure the lender and will be based on the amount of the loan. If an owner’s policy of title insurance is purchased, it is typically based on the purchase price of the real estate. In the event both policies are purchased (simultaneous issue), the cost for the lender’s policy is reduced substantially (see hypothetical computation below).

HYPOTHETICAL COMPUTATION FOR TRANSACTIONS

Based upon the indicated hypothetical rates below, if you are buying a home for $100,000 and are borrowing $75,000, the cost for each policy, without the other, is as follows:

• The $100,000 Owner’s Policy at $5.75 per $1,000 is … … $575.00
• The $75,000 Lender’s Policy at $3.50 per $1,000 is … … $262.50
• The cost for independently purchasing both policies is … … $837.50

However, if you purchase both policies at the same time (simultaneous issue), the cost for the Lender’s Policy is reduced to only $100.00; just add this $100.00 to the cost of the Owner’s Policy ($575.00); both policies will then cost … … $675.00.

Your total savings by purchasing both policies is … … $162.50

FROM THE OHIO TITLE INSURANCE RATING BUREAU, INC.

http://www.gtinsurance.com/Static/RateManual.pdf

PR1-AN ORIGINAL TITLE INSURANCE RATE FOR OWNER’S OR LEASEHOLD OWNER’S POLICIES: An Owner’s Policy insuring fee simple estate will not be issued for less than the insured’s interest in the full value of the land. An Owner’s Policy, endorsed to insure a leasehold estate, will not be issued for less than the full value of the leasehold estate.

PR-6 RATE FOR SIMULTANEOUS ISSUANCE OF OWNERS AND LOAN POLICIES: When simultaneous issue of Owner’s and Loan Policies covering identical land are issued, the combined rate for the simultaneously issued policies shall be the applicable Owners Rate plus $100 for each Loan Policy issued, provided that the Loan Policy (or if more than one Loan Policy is issued, then the aggregate amount of the Loan Policies) does not insure in an amount in excess of the Owner’s Policy.

3/26/2008