Mortgages and Foreclosure
There are a number of methods to finance a real estate transaction. The most common is a mortgage. This is a loan which transfers an interest in the land as collateral for repayment of the debt. The borrower typically pays the mortgage in installments that include both interest and principal payments. If the borrower fails to make payments, the mortgage's owner can and will foreclose on the property. In a foreclosure, the lender declares that the entire debt is due immediately. If this is not repaid, the lender can sell the property to pay the remainder of the debt.
Foreclosure procedure depends on federal and state laws, the terms of the mortgage, and the existence of any other liens on the property. A limited amount of late payments are allowed in many states in order to avoid foreclosure, and most lenders also attempt to work extensively with borrowers in a variety of situations before going through with a foreclosure as a last resort to receive payment. If a foreclosure is threatened, a borrower should consult with an experienced real estate attorney to protect his or her interests and resolve the situation as soon as possible.
A deed is a legal document which records the transfer of real estate between owners. No real estate transaction is complete unless the buyer receives a valid deed to the property. Legal requirements for deeds include:
- Must be in writing. Verbal transactions are not legitimate.
- The names of the buyer and seller.
- A legal description of the property.
- The signature of the person transferring ownership.
- Must follow state and federal laws.
State laws differ regarding the language and format for deeds. There are different types and the two most common deeds are quitclaim and warranty deeds.
A quitclaim deed allows the seller to resign any rights he or she has to the property. However, it does not guarantee the extent of these rights. Quitclaim deeds are often employed during divorces, when one spouse transfers property rights to the other. This does not release one from an obligation to a mortgage they have signed.
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A warranty deed includes an explicit promise to the buyer that the seller has clear title to the real estate. The warranty deed offers the buyer much greater protection, as it guarantees that no liens or encumbrances are extant against the property and undisclosed in the deed. It also obligates the seller to protect the buyer against any defects in the deed. A special warranty deed only contains this guarantee for claims which arose while the seller was the legal owner of the property.
It is a good idea to officially record the deed and make it public record. County governments record property deeds at an office, which is often (but not always) called one of the following:
- The recorder's office.
- The land registry office.
- The register of deeds.
Even if the broker or closer handles the recording of the deed, it is a good idea to make sure that this crucial step takes place. Recording the deed makes the transfer public record, and allows future title searchers to find the history of a property's ownership.
Given the crucial nature of the deed, it is vital to have the deed reviewed by a competent real estate attorney.