Articles

RESIDENTIAL REAL ESTATE TRANSACTIONS

 

Role of the Lawyer.

In most cases both the buyer and seller of real estate are represented by a lawyer, and the lending institution relies on the buyer's lawyer to prepare a Title opinion to assure marketable title will be passed on to the buyer.  Some lending institutions engage separate counsel, and buyers often choose to rely on the lender's counsel in order to keep legal fees at a minimum.

 

Offer to Purchase Agreement.

In most residential transactions, the real estate agent prepares an offer to purchase agreement (once the parties reach agreeable terms) and has both parties sign it.  The agent also deposits earnest money in a trust account.  Certain disclosure forms on the condition of the property and the possible presence of lead-based paint must be completed by the seller and delivered to the buyer before the buyer signs the purchase agreement.

 

Most purchase agreements require the seller to provide a certificate that the property is free of wood-destroying insects (or to provide treatment, if necessary); require the seller to pay unpaid real estate taxes and to prorate to the date of closing taxes that have not yet been billed by the county; and specifies that the closing of the sale will occur on or before a certain date.

 

For Sale by Owner.

If an owner sells real estate without the assistance of a realtor, the lawyer for either the seller or buyer usually prepares the offer to purchase agreement, and assists the seller in the completion of any required property disclosure forms.

 

 

Title Opinion.

The seller is required by provide an Abstract of Title that has been continued to the current time by an abstract company.  The buyer and lender usually rely on a written Title Opinion prepared by the buyer's lawyer and based upon an examination of the Abstract.  Any objections are resolved by both parties' lawyers before the closing.  After the closing a Deed (and usually a Mortgage) are recorded.  The Abstract is continued again and returned to the lawyer, who issues a Certificate of Title to the lender that certifies that the buyer has clear title to the property and that the lender's Mortgage is the first lien on the property.

 

Title Insurance.

State law prohibits the sale of title insurance in Iowa.  The Legislature has taken this position because of Iowa's accurate recording of all material that may affect title to real estate, and as a result of studies that show title insurance increases the cost to the consumer without any measurable benefit.

 

The Iowa Finance Authority (a state agency) in recent years has developed a title guaranty system in which a lawyer may issue title commitments and guarantee certificates to the owner and lender.  The guarantees are backed by the Iowa Title Guaranty Fund.  This satisfies any requirements of out-of-state lenders that may be more familiar with the use of title insurance.

 

Seller's Obligations.

In addition to providing the Abstract of Title showing good title and delivering a Warranty Deed to the buyer, the seller has these other obligations:

 

1.  Iowa Transfer Tax.  The seller must pay (to the County Recorder) a transfer tax based on the actual sale price of the real estate.  The tax rate is 80 cents for each $500 or fractional part of $500.  The first $500 of the sale price is exempt from tax.

2.  Declaration of Value.  The seller must submit with the Deed a form that describes the property being sold and certifies the sale price of the property.

3.   Groundwater Hazard Statement.  The seller also submits with the Deed a statement concerning known hazardous waste, underground storage tanks, and wells on the property.

 

Real Estate Taxes.

Iowa operates on a fiscal year of July 1 to the following June 30.  Real estate taxes that accrue during one fiscal year are due and payable in the following fiscal year.  For example, taxes for the 2007-2008 fiscal year become a lien on the property on July 1, 2008, and are due and payable to the County Treasurer in the 2008-2009 fiscal year.  The first half is delinquent if not paid on or before September 30, 2008, and the second half is delinquent if not paid on or before March 31, 2009.

 

Since real estate taxes due and payable in the fiscal year are a lien against the property, the taxes must be paid in full in order to provide good and marketable title to the buyer.  Since most purchase agreements require the taxes to be prorated to the date of closing, the seller must pay a prorata portion of the taxes that will be due and payable in the following fiscal year.  Proration requires calculating the number of days from July 1 through the day of closing and prorating the estimated taxes.  Since those taxes are not actually set by the county until July or August of the following fiscal year, the proration typically is based on the taxes for the current tax year and paid or credited to the buyer at closing.

 

Closing.

If a lending institution is involved in lending the buyer funds for the purchase, the closing usually occurs at the lending institution (or another place designated by them).  If no lender is involved, the most common practice is to have the closing at the seller's lawyer's office (but sometimes at the buyer's lawyer's office).

 

--June 6, 2008.

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