Home Buyers Q and A

Home Buyer Questions and Answers

What is an option?

It is a right a seller grants a buyer to buy real estate within a certain period of time. For example, suppose you are interested in buying an office building but want more time to investigate the cash flow and compare this building to others in your area. You might offer to pay the owner an option fee to tie up the property. In return, the owner might be willing to grant you the right to buy the building within a certain period (say, six months) at a stated price. The owner would not be able to sell to anyone else in meantime.

You could agree that all or part of the option fee would apply toward the purchase if you decided to actually purchase the property. If you did not exercise your option, you would forfeit your option fee.

What are contingencies?

Contingencies are escape hatches in a real estate contract. They let you walk away from the deal without penalty if certain conditions are not met. You might, for example, sign a contract to buy a building, but make your obligation to close contingent on things such as the following:

(1) Your being able to get a mortgage loan of at least 75% of the purchase price.

(2) Your having a contractor inspect the condition of the building and your being satisfied with the contractor’s report.

(3) Your determination that the building can be renovated to your satisfaction.

(4) Your being satisfied with a report you will order concerning environmental hazards.

Your lawyer can help you put the right contingencies in the contract for your deal.

What are some things a buyer should look out for when dealing with the purchase of a house?

The buyer should consider the following:

(1) Exactly what property is included in the sale? Lighting fixtures, drapes or blinds, refrigerators, stoves, washing machines and dryers are often problem areas.

(2) Is the neighborhood quiet, friendly? Are the homes well kept?

(3) Are there any development plans that will affect the property?

(4) The inspection report – are there any substantial problems with the house?

(5) Real estate taxes – what are the current property taxes, and what impact will your purchase have on the taxes?

If a buyer makes an offer on a house, is s/he bound to it? If a seller accepts an offer, can s/he change his/her mind?

A buyer can withdraw an offer anytime up until the offer is accepted by the seller. After that, the seller may owe the commission to the broker, and may well turn around and sue the buyer for breach of contract to recover the cost of that commission.

If the seller changes his/her mind after accepting an offer, especially if the terms of the listing agreement have been met, s/he usually still owes the broker a commission. This depends largely on the wording of the listing agreement; it might be wise to state that the commission will be paid upon completion of the sale of the property.

How can I protect myself before I sign?

For starters, know what you are buying. Ask questions. For example:

(1) Are there any zoning violations on the property which will have to be corrected?

(2) Are there any environmental hazards which may be present (someone in the distant past may have dumped environmental hazards on the property so an environmental assessment should be made)?

(3) Are there any apparent conditions on the property which could potentially harm someone who happens to come on the property?

(4) Are there any restrictions or covenants in the purchase contract that would be hard to comply with?

(5) Will you be able to pay the mortgage on time?

(6) Are there any potential defects in the chain of title? Resolve these issues before you take title, interest or possession.

Real property owners can protect themselves from many of the risks of ownership by purchasing insurance. The two most common forms of insurance for real property includes liability insurance and title insurance.

What happens between the time my offer to buy property is accepted and when I actually ‘close’ on the property?

The time period between the time you give a good-faith deposit check and the closing date is a set time period (normally 30, 60, or even 90 days). Your deposit check will be cashed so be sure you have sufficient funds in your account to cover it. Your deposit money will go towards the purchase price if the sale goes through. But if you back out of the deal for a reason not set forth in the contract, the seller may be entitled to keep the deposit money.

During the time period before closing date, the terms of the purchase contract are to be taken care of. The contract probably includes a financing contingency and inspection contingency, and a provision that the buyer can and will confirm a title to the property free of defects.

The inspection provision allows the buyer to have the property professionally inspected. The financing provision gives the buyer time to secure mortgage approval. Because this is often a lengthy process, the buyer should begin seeking financing immediately after the contract is signed.

When you receive the title report, review it carefully. It is a good idea to have an attorney experienced in real estate review any troublesome items in the report. You want to be sure to get clear and marketable title to the property. And before deciding how to hold title in the property, it would be beneficial to consult an attorney familiar with ownership and estate planning issues.

During the closing period be sure to comply with any state or local ordinances that come into play in property ownership transfers. Line up homeowners insurance and schedule a final walk-through inspection to be sure the house is what it should be before you take over ownership.

What is a holdover home seller? And how do I get rid of him?

A holdover home seller is one who remains in a house after the closing has taken place. The new owner may find it difficult to get them to move out since title has been transferred.

It is important for homebuyers to inspect the property within 24 hours of title transfer. If the seller has not moved out, it is wise to delay the closing date until the house is vacant. Before close, the buyer has leverage over the seller, but this changes after the transfer of title. Then, it may require paying moving expenses or compensating the holdover seller in some way. Or you may need to follow your state’s unlawful detainer eviction laws. You should consult an attorney knowledgeable in these procedures.

What legally can be done to block a holdover home seller situation?

It is important that the contract have provisions included in it for handling closing problems and delays. Many contracts do not cover the issue of short delays. If these delays are not addressed in the contract, the party who is ready, willing and able to close will have to bear any costs resulting from the delay of closing. But if the contract states that “time is of the essence” as to the closing date, then you have the right to sue for failure to close. It is critical that the contract contain a full range of remedies for failure to close including a specified daily charge to be paid by the seller for failure to close or vacate the property by the closing date.

There has been a delay in the date escrow will close on the house we are selling. The buyers want to move in before the newescrow closing date. Is this a problem if they agree to pay rent?

It could be. Once the buyer has possession, if he decides to back out of the deal, you might have to go through an eviction process which can be costly and time consuming.

If you still want to let the buyer move in, you need to amend the purchase agreement by adding rental terms. Consult an attorney to draft the agreement so you can be sure it is adequate. These provisions should cover how much rent will be and when it is due. Also make sure the buyers do their walk through inspection prior to moving in. That way there won’t be any surprise problems at actual closing time.

Upon moving in, the utilities should be put into the buyer’s name. Make sure the buyer obtains adequate property insurance. The seller should require that the buyer put a substantial deposit in escrow and sign a liquidated damages agreement. The deposit can be applied towards the down payment if and when the sale closes on time. If the closing is delayed or the buyer backs out, the deposit will be forfeited as liquidated damages. Your agreement should stipulate that the buyer will receive only a portion of his deposit back if he vacates the property.

What kinds of insurance can I buy?

The two most common forms of insurance for real property include liability insurance and title insurance.

Liability insurance: provides coverage if someone is injured or harmed on your property or as a result of your ownership of the property. Typically it is sold in a package policy (renter’s, homeowner’s, business liability, etc.) which bundle a variety of coverage – such as liability, property contents, theft, and defense against lawsuits – to cover the risks that most owners of similar polices face. Some insurance carriers offer personal excess or “umbrella” liability policies to protect you from expose to liability risks beyond the standard limits offered through homeowner or business liability policies. Also, check your policy to see if flood, earthquake, tornadoes, hurricanes and land subsidence are covered. You may need or want additional protection if those adverse weather conditions are prevalent in your area.

Title insurance: provides coverage to a homeowner if it is discovered in the future that there was a defect in the title and the homeowner did not get clear title to the property. Generally required by the mortgage lender, this type of policy covers the costs of defending your title against the claims of another.

How do homeowners fit regarding property damage?

In homeowner’s insurance, there are a variety of coverage which are available to you. There is coverage for your home and its contents (contents coverage is usually 10% of the value of the home) against loss from fire, theft and other perils (or from any cause of damage under an “all-risk” policy, unless the cause is specifically excluded). In addition, there is liability coverage to protect you in case someone is injured on your property. Many policies also provide coverage for your property if it is lost or stolen even if the loss occurs away from the home (for example, if your camera is stolen while you are on vacation, your homeowner’s insurance may cover this loss). Most homeowner’s insurance exclude losses due to floods and earthquakes – although “riders” or separate coverage for these perils may be obtained.

In determining what Liability Limits you should purchase, you need to consider the amount of exposure that you have. As a general rule, the more property and wealth that you have, the greater your exposure is and the need for higher liability limits for protection against claims from third parties. Often, liability limits are set as a combination of numbers, such as 15/30, which means coverage of loss of up to $15,000 per person and up to $30,000 for all injuries which occur in a single accident. Many states require a minimum amount of third party liability insurance be purchased before a you may drive a vehicle on public roads. This is referred to as the minimum liability limit. Often the minimum liability limit is inadequate to protect all of your property and wealth. Increased limits, such as 100/300 or 300/500 are very common and can be purchased at modest addition cost to you. There is no minimum liability limit for a homeowner’s insurance policy, although most lenders require you to carry insurance at least equal to the amount of your outstanding mortgage.

What is a mortgage and how does it affect my owning real property?

A mortgage is an interest in land which provides security for the performance of a duty or payment of a debt. Some states apply the common law rule that the conveyance of real property is void and is defeasible should the “owner” fail to make the payment. Many states recognize a mortgage as a mere lien (without conveying an interest in the land other than security or lien) and some states have adopted hybrid approaches.

What are the various types of mortgages?

There are many popular financing options for home purchases. See our section on Mortgages. The types of mortgages that are typically available to prospective homebuyers are:

(1) Conventional: With a conventional mortgage, the lender obtains a lien or defeasible legal title to the property in return for the payment of the amount of money lent.

(2) FHA mortgage: An FHA mortgage is a conventional mortgage which is insured in whole or in part by the Federal Housing Authority.

(3) Purchase money mortgage: A purchase money mortgage is one that is given to secure the loan which is used to buy the property. A first (senior) mortgage on the property has priority over any second or subsequent (junior) mortgages on the property; the senior lender has a more secure interest in the event of a default since the senior obligations are paid first in the event of foreclosure and sale.

(4) Adjustable rate mortgages: An adjustable rate mortgage (often called an “ARM”) offers a fixed initial interest rate and a fixed initial monthly payment. After the initial period is over, the rate and term of the mortgage can be modified at predetermined times under the agreement to reflect the current market mortgage rates.

There are other mortgage options, such as balloon mortgages, shared-equity mortgages, biweekly mortgages, reverse mortgages, and buy downs.

What happens if I cannot make a mortgage payment?

If you default, your lender can begin foreclosure proceedings. If you are unable to pay the default amount, the title to your property is transferred to the lender who will re-sell the property to recoup its loan. If there is a difference between the sale price of the property and the outstanding balance under the loan, the lender can sue you to recover the difference. If successful, your wages can be garnished or your other assets seized to pay the deficiency amount. However, not all states allow the lender to institute such action (see below).

What can protect me for any potential deficiency balance after foreclosure?

Some states have anti-deficiency laws which protect purchasers of residential real property used as his/her primary residence pursuant to a purchase money mortgage. In the event that the purchaser fails to make the mortgage payment and the property is foreclosed (title taken by the lender through a legal procedure) and sold to pay the mortgage, a deficiency between the sale price and the outstanding balance of the mortgage could occur. Under anti-deficiency laws, if the mortgage is a purchase money mortgage for the purchase of a dwelling occupied by the purchaser, the purchaser will not be held responsible for any deficiency – the lender can only recover the property and the proceeds of a subsequent sale – the purchaser does not pay any deficit between the sale proceeds and the outstanding loan balance.

Anti-deficiency laws typically provide no protection for non-purchase money mortgages (such as a second mortgage obtained after the original acquisition) and there is no protection when the property is not used as the primary residence of the purchaser.

What is recording title all about?

When you purchase real property, you will receive a written document (called “the deed”) which transfers the ownership (title) of the property to you as the purchaser. The deed gives you formal title in exchange usually for a specified amount of money. The conveyance of real property is not complete until the deed is delivered to you or your authorized agent.

When you get the deed, you should record it with the county recorder in the county where the property is located. The purpose of recording the deed is to give “notice to the world” that you now have an ownership interest in that particular piece of real property.

Recording also tracks the chronological chain of title. Anyone who wants to know who owns a piece of real property can check the records of the county recorder for the county where the property is located. Before you purchase real property, you can follow the chain of sales and transfers of the property – from the original grant of the land all the way to the current owner. When title insurance is purchased, the title insurer checks the change of title to determine whether any defects occurred in prior conveyances and transfers – defects may then be pointed out and excluded from coverage. As a purchaser of property, you want to check that every time in the past, when the property was transferred, the grantor had clear title to the property and the previous purchasers obtained clear title. If someone in the past got less than “the whole bundle of sticks” you will not get clear title.

Within a short time after buying our home, the heating system failed. It will cost several thousand dollars to replace. The sellerwrote ‘don’t know’ on the disclosure form, and the home inspector said the system was working fine. Do we have any recourse?

Some real estate companies offer home warranty policies that will cover buyers for losses occurring to appliances and home systems soon after closing. These policies may be paid for by either the seller (to sweeten the deal) or the buyer. Check to see if you had such a policy issued to you at closing.

If you do not have this warranty coverage, you will need to look at many factors to determine whom, if anyone, might be liable. Did the seller live in the house? Did the seller answer many questions on the disclosure form with “don’t know”? If the seller truly did not know of the problem, that is okay, but he cannot hide behind stated ignorance if he did not know of the condition. Was the inspector knowledgeable? did he have you sign a contract that strictly limited his damages? If so, courts are not likely to overturn this limit. A real estate attorney well versed in disclosure issues can help determine if you have any grounds for recovery.

What is eminent domain about?

States and localities and the federal government have the right of “eminent domain”, which means they can condemn and force the sale of private property for public purposes (see our section on Comdemnation). For example, the government condemns a block of homes because they need the property to build an interstate highway. An individual’s rights are subordinate to the government. When private property is taken by the government, the owner is entitled to receive just compensation for his property.

What is adverse possession?

Traditional common law provided a method for someone to obtain title to land through use. The common law rules for adverse possession have been codified under both federal and state statutes. A typical statute allows a person to get title to land from the actual owner simply by using the land, out in the open for all to see. For example, your neighbor built a fence on your land with the intention of taking the property, paid property taxes, and you knew about it but did nothing. If this continued for a period of time set by state law, your neighbor may be able to claim this property as his/her own. The theory is that, by not disputing your neighbor’s use of your property through a lawsuit, you, as the actual owner have abandoned your rights to the property. There are several elements needed for adverse possession to result in title:

The length of time required for adverse possession in title varies – it could be as short as a few years or could run for twenty years or more. Typically public entities must establish a longer period of possession than individuals. Some states have adopted a rule which requires the adverse possessor to pay taxes each year on the land.

The possession must be open for all to see.

The possession must be exclusive to him or her (e.g., the fence in the above example, a driveway, road, etc.)

The possession must be hostile to the actual owner of the land.

To gain title to land through adverse possession requires strict compliance with the law, but can have dramatic impact upon land ownership rights.

An encroachment could result in title to your property being transferred to an adverse possessor. Under these circumstances, you might have to bring a lawsuit for trespass in order to prevent your neighbor from getting title to your land through adverse possession.

If you own land, it is important that you do not “sleep on your rights” since you could lose ownership of the land.

I have heard the terms ‘color of title’ and ‘cloud over title’. Other than colorful phrases, how do they impact title?

Color of title, also referred to as “apparent title,” occurs when any fact which appears on its face to support a claim of present title to land for some reason fails to establish ownership by law. For example, you purchased a ski chalet for investment purposes at Squaw Valley, receiving what you thought was a valid title. Later, it turned out that the previous owner’s title, handed down through several generations of his family, was defective.

Typically color of title occurs in the form of a writing – an instrument which contains a description of land which has been conveyed but because of some defect falls short of the mark. A “cloud on title” exists when any outstanding claim affects your title to land. If a cloud exists over title to your property, you might have to bring a lawsuit to quiet title and firmly establish in law that you own the land.

A “cloud on title” exists when any outstanding claim affects your title to land. Suppose, for example, that you are informed by letter that your ownership of your Maui beach bungalow is invalid because of an earlier deed on the property. In other words, someone else is challenging your ownership of the beach bungalow. The remedy usually for removing a cloud on a title is to bring a proceeding in court to firmly establish in law that you own the land.

What are real estate syndications?

Real estate syndicates create, sell, and operate real estate investments. This type of industry was especially popular in the ’80s, due to the favorable tax shelter treatment offered in the IRC. They offer a veritable myriad of investment scenarios, such as raw land speculation, new construction, new property or rehabilitation. A syndicate may be in the form of a corporation, or full or limited partnerships, with the latter being the most common format.

In determining whether a real estate syndication makes sense for you, an attorney experienced in real estate can be an excellent source of information for helping you understand the advantages and disadvantages of the investment and your rights as an investor in a real estate syndication.

What tax advantage do I get by owning real property?

The major advantage to owning real property comes from the availability to deduct the interest of a home mortgage and a home equity loan. In order to qualify for an income tax deduction for interest paid on a mortgage:

(1) “acquisition indebtedness” incurred in acquiring, constructing or substantially improving a qualified residence secured by the residence, is subject to a $1,100,000 aggregate loan amount limitation

(2) “home equity indebtedness” (other than “acquisition indebtedness”) secured by a qualified residence to the extent that the amount of the loan does not exceed the fair market value of the qualified residence reduced by the amount of the acquisition debt, subject to a $100,000 aggregate loan amount limitation.

(3) “qualified residence” means your principal residence and one other residence (such as a vacation home) that is not rented to others.

The interest that you pay on a mortgage for your home, your vacation home, and for a home equity loan can be deducted from your income. In order to take the deduction, Schedule A (Itemized Deductions) must be completed and attached to your 1040 Federal Income Tax Return. Many states likewise enable you to take a deduction from your taxable income for interest paid on your home, qualified vacation home and qualified home equity loans.

Real estate taxes are also deductible on your federal return. Deductible real estate taxes are any state, local, or foreign taxes on real property levied for the general public welfare. The taxes must be based on the assessed value of the real property and must be charged uniformly against all property under the jurisdiction of the taxing authority. Deductible real estate taxes generally do not include taxes charged for local benefits, trash and garbage pickup fees, transfer taxes, homeowners’ association charges and rent increases to higher real estate taxes.

What taxes am I subject to on my home?

Property owners are subject to local property tax. These taxes are typically collected by County Tax Assessors. The payment of property tax is sometimes added to a home mortgage payment (in escrow by the company serving the mortgage for payment to the local tax collector). The usual method for determining the amount of taxes to be paid is based upon the assessed value of the property and improvements found on the property – if you feel the assessed value is too high you have the right to appeal, using actual sales of comparable property in your local area as evidence of the accurate value of your property.

I sustained water damage at my condo through no fault of my own. The condo association agreed to pay for the damage butnow is dragging its feet and giving me reasons why they won’t ante up. Who do I sue for reimbursement and where?

First, write the association’s insurance company directly and file your claim with them. The company may be willing to pay and the condo association is just not putting the claim through in an effort to prevent premium hikes. If that doesn’t work, (1) File against the condo association and send a copy of the complaint to their insurance company. (2) File in small claims court only if your total damages plus costs of suit are less than the maximum award the small claims court can give you. If your damages are higher, file in district court (the next court up).

There is a tree located in our back yard that is half on our property and half on our neighbors. Can we cut it down?

Only the part that is on your property.Your options are:1) Get the neighbor to agree that you may cut down the tree.2) Cut it down and hope the neighbor doesn’t sue you.3) Cut off any part of the tree that extends over your property line (branches, portions of trunk, roots, etc.). These parts of the tree belong to you and you can do whatever you want with them. This will of course kill the tree, forcing the neighbor to take the rest of it down. Expect your neighbor never to talk to you again. 4) Build your fence inside or around the tree. 5) Build your fence right up to the tree trunk.In all cases, get a survey of your back property line. You may find the tree is entirely yours.

What is a quitclaim deed?

A quitclaim deed transfers or “releases” to the transferee whatever present right or interest the grantor has in the described property. Unlike a grant deed, a quitclaim deed carries with it no express or implied covenants. Thus, if the grantor holds no interest in the property, a quitclaim deed conveys nothing.

My granddad quitclaimed his home to my father with rights of survivorship. The quitclaim was notarized, witnessed, but notfiled in the recorder’s office. My grandfather recently died. Is it too late to file?

The property was always your dad’s property, right after your grandfather signed, and from that moment, it went from grandfather’s estate, to your dad’s estate, allowing your dad to sell it, keep it, bequeath it, or whatever he wanted (or wants) to do with the home. It is also advisable to record the quitclaim deed. Recording a deed merely places “the world on notice” of what had transpired between you grandfather and your dad, and lets everyone know that your father has good title to the home.

How can I stop someone from using my residential driveway for commercial purposes? I have a deed to the property.

If it’s a private driveway that serves only your house, install a gate. If residential traffic is allowed, but commercial traffic is not, hire a real estate lawyer to obtain an injunction forbidding the offender from routing commercial traffic over the driveway and requesting damages for past instances of same (excessive wear and tear on driveway).

Is there a difference between a residential and a commercial lease?

When a person leases rental property from a landlord for use as a residence, the arrangement is called a residential lease. When a business leases rental property, the arrangement is called a commercial lease.

While there are many similarities between residential and commercial leases, state and local law often regulates the relationship between a tenant and a landlord under a residential lease. These laws are designed to provide basic requirements for the condition of rental property, and to protect tenants from unscrupulous “slumlords.” Since commercial leases are viewed as being contracts between knowledgeable business people, less governmental protection is needed, as knowledgeable business people should be able to negotiate the terms of the lease to their respective satisfaction.

Since my spouse died, I was thinking about adding the names of my adult children to my house deed. Is this a good idea?

While sharing title to property avoids probate after your death, naming “joint tenants” has legal and tax consequences. In effect, adding a joint tenant to your home deed means that you have now gifted a portion of that property to those named. And when you make gifts in excess of $10,000 (increased in 2002 to $11,000) in value within a calendar year to someone other than a spouse, the IRS may expect you to file a gift tax return, and in some cases pay gift taxes.

When gifting an interest in your home to anyone, you also are jeopardizing your own financial security. If the person named on the deed owns the home in its entirety, then he or she can decide to sell the home out from under you. Also, if you transfer property in some states you may lose certain property tax and other exemptions you enjoy as a senior, veteran, or homesteader.

A better idea is to create a Living Trust and name your children as beneficiaries of the Trust after you die. This has the advantage of avoiding probate, yet it gives you total control of your house prior to transferring ownership. You can also change beneficiaries if you so desire, and also provide for the circumstance if one child predeceases you.

What are some of the common forms of property ownership?

There are a variety of forms of ownership of property. The more common forms of ownership include:

(1) Joint Tenancy: property owned by two or more people at the same time in equal shares; typically referred to as the four unities (unity of time, title, interest and possession vesting in each joint tenant). Each joint tenant has an undivided right to possess the whole property and a proportionate right of equal ownership interest. When one joint tenant dies, his/her interest automatically vests in the surviving joint tenant(s) by operation of law. Words in the deed such as “John and Mary, as joint tenants with right of survivorship and not as tenants in common” establishes title in joint tenancy. Not all the states allow this form of property ownership.

(2) Tenancy in the Entirety: some states have a special form of joint tenancy when the joint tenants are husband and wife — with each owning one-half. Neither spouse can sell the property without the consent of the other. Words in the deed such as “John and Mary, husband and wife as tenancy in the entirety” establishes title in tenancy by the entireties.

(3) Sole Ownership: owned entirely by one person. Words in the deed such as “John, a single man” establishes title as sole ownership.

(4) Tenants in Common: property owned by two or more persons at the same time. The proportionate interests and right to possess and enjoy the property between the tenants in common do not have to be equal. Upon death, the decedent’ s interest passes to his/her heirs named in the will who then become new tenants in common with the surviving tenants in common. Words in the deed such as “Peter, Paul, John and Mary as tenants in common” establishes tenancy in common.

(5) Community Property: only in states that recognize community property, a special form of joint tenancy between husband and wife, each owning one-half. Upon death, the decedent’s interest passes in a manner similar to tenants in common. Words in the deed such as “John and Mary, husband and wife as community property” establishes community property ownership.

The above ways for owning real property are all present interests – that is, the owner has the rights now. There are also future interests – that is, interests in property that come into effect in the future. Typically future interests are based upon the occurrence of a contingency, such as someone dies and the decedent’s interest in the property passes in accordance with his/her last will or trust.

What is the difference between cooperatives and condominiums?

In a “condo” arrangement, you legally own a particular unit in a multiple unit structure of building. Plus, under a typical arrangement, you have a share and a right to use common property (i.e., hallways, elevators, gardens, swimming pools, club house, and so forth) within that structure. Monthly payment to an “association” for expenses incurred in maintaining the common property are normally required. The association gains its legal authority from the legal documents which create it – declarations, by-laws, and articles – and these associations typically run like a corporation and may be managed by professional property management companies. There are usually complaint and appeal processes built into the association documents to protect individual rights and to provide a mechanism for resolving controversies within the community – as well for selecting the members of the Board of Directors who oversee management of the association.

A “co-op”, on the other hand, is a “horse of a different color”. You do not own your own specific unit in the building but own stock in the corporation that actually owns the building and all the apartments. You lease your apartment or unit from the corporation. The unit’s size determines the number of shares of stock you must purchase. Monthly fees based on the number of your shares of stock are assessed for the mortgage payment, taxes, and general operating expenses. As a shareholder, you have a say in electing the Board of Directors who manage and decide on how the cooperative is to be run, who is qualified to buy shares, and so on.

What are the risks in owning real property?

There are many risks inherent in owning real property. Some of the more common include:

(1) liability for violation of zoning ordinances.

(2) liability for environmental hazard clean-up.

(3) liability to others who are injured on the property.

(4) liability to others who are injured by the property (such as an uphill landowner is responsible when his land slides onto a downhill landowner’s property).

(5) liability to third parties pursuant to contract (such as responsibility to make mortgage payments to the lender).

(6) liability to a purchaser when the property is sold (and there is a problem in transferring title, interest or possession).

(7) If you fail to maintain your property or knowingly create a condition on your property that causes injury to someone’s property or person without taking steps to eliminate the hazard or provide a proper warning; you could be determined to be negligent and thus responsible for the harms and injuries that result of your negligence. To reduce your exposure to risk from owning real property, you have an affirmative obligation to maintain your property so as not to cause harm or injury to others.

Despite the risks inherent in owning real property, most people agree that owning real property is desirable.

How can I protect myself before I sign?

For starters, know what you are buying. Ask questions. For example:

(1) Are there any zoning violations on the property which will have to be corrected?

(2) Are there any environmental hazards which may be present (someone in the distant past may have dumped environmental hazards on the property so an environmental assessment should be made)?

(3) Are there any apparent conditions on the property which could potentially harm someone who happens to come on the property?

(4) Are there any restrictions or covenants in the purchase contract that would be hard to comply with?

(5) Will you be able to pay the mortgage on time?

(6) Are there any potential defects in the chain of title? Resolve these issues before you take title, interest or possession.

Real property owners can protect themselves from many of the risks of ownership by purchasing insurance. The two most common forms of insurance for real property includes liability insurance and title insurance.