Although Tel-Law information is periodically reviewed, it is important for you to realize that changes may occur in this area of law. This information is not intended to be legal advice regarding your particular problem, and it is not intended to replace the work of an attorney.
If you do not have an attorney, the Oregon State Bar Lawyer Referral Service can help you. Online Lawyer Referral Service information and a fill-in form is available. Or you may contact the service by phone: The number to call from the Portland area is 503-684-3763 or toll-free from anywhere else in Oregon, 1-800-452-7636.
The following information regarding real estate is brought to you as a public service by the lawyers of the State of Oregon. The material presented is general legal information intended to alert you to possible legal problems and solutions.
If you use a real estate broker to sell your property, you will likely enter into a written contract called a listing agreement. Often the listing agreement is a preprinted form containing many provisions, including representations and warranties of the seller regarding the title to and condition of the property and indemnification of the broker by the seller. A real estate broker may negotiate with you on some of the terms such as the amount of commission to be received, the length of time during which the broker may sell the property and receive a commission, and just what he or she will do for you to sell your property. An exclusive listing, which entitles a broker to a commission regardless of who sells the property, is another negotiable aspect of the listing agreement.
Generally, the seller will be required to pay the agreed commission if the broker produces a qualified buyer even if the seller is unable, through no fault of the broker, to go through with the sale. The listing agreement may provide that the broker will receive a commission even after the listing agreement has expired if the property is sold to a prospect produced during the term of the listing agreement. It’s a good idea not to sign a listing agreement before you fully understand it. A buyer may have his or her own agent, and similar rules will apply.
Perhaps the most important step in a real estate transaction is the earnest money agreement. This agreement sets out the steps to conclude the sale. Once they sign this agreement, buyer and seller are legally bound to purchase and sell the property according to the terms in the agreement.
The earnest money agreement lists the parties, describes the property, the kind of deed, the price, the earnest money deposit amount, the terms of payment, and many other conditions. Some earnest money agreements provide that the buyer will lose his or her deposit by backing out of the deal. Other earnest money agreements may allow the seller to force the buyer to purchase the real estate. State law requires sellers to complete and give a disclosure statement in statutory form to each individual who makes a written offer to purchase real estate in Oregon. A buyer who receives a completed disclosure statement has five business days in which to revoke the offer to purchase the property by delivering a signed, written statement of revocation that the buyer disapproves of the disclosure statement, unless the buyer waived the right to do so or closes the transaction before revoking the offer. If the seller refuses to provide a completed disclosure statement in statutory form, the buyer may terminate at any time up until closing.
A printed earnest money form with blanks to be filled in may not adequately protect either the buyer or the seller. Such forms may require a buyer to purchase the property, even if the buyer can’t get satisfactory financing, or discovers a defect in the property, or learns about other problems that will prevent the buyer from using the property as intended. Likewise, under some preprinted earnest money agreements, the seller may be liable for damages if he or she is unwilling or unable to deliver proper title or if the condition of the property is other than as described in the agreement. This is true even though the seller may have acted in good faith and believed he or she had good title or believed that there were no encumbrances against or defects in the property. A lawyer can help draft an addendum to preprinted forms to cover the individual needs of a buyer or seller. It is essential that both parties understand the terms and consequences of the earnest money agreement.
It is wise to get a preliminary title report from a title insurance company before signing the earnest money agreement or giving each party the right to opt out if title problems arise. Buyers should also secure a right to opt out if defects arise such as construction problems, flawed siding or other materials, or leaking underground heating oil tanks.
The earnest money agreement may also require the seller to vacate the property by the closing date, which means moving before the sale is complete. If the buyer backs out, forfeiture of the earnest money may not be enough to cover the cost of the early move.
The final step is usually Closing The Sale.
The exchange of money (or properties, in an exchange transaction) and documents in the closing of a real estate transaction usually will be handled by the lawyer for one of the parties, or by an escrow agent selected by the parties. An escrow agent is a neutral third party who cannot and will not undertake to represent the rights of either the buyer or the seller. Many buyers and sellers of real estate mistakenly believe that an escrow agent will guarantee that their rights are protected.
The rest of this topic discusses title insurance, deeds, mortgages and contracts.
The legal ownership of or title to real property can be verified by a search of property records at the county courthouse. A title insurance company searches property records for you and will issue a preliminary report based upon this search. A preliminary title report is often obtained after the earnest money agreement is signed and before the title insurance policy is issued. The preliminary title report will show limitations on the use of the property and any indebtedness against the property.
Title insurance affords you important protection against financial loss and the expense of defending your title in court. A policy of title insurance is issued by a title insurance company at the time of closing. A number of serious risks exist that a title insurance policy may not cover, such as claims for labor and materials not shown by the courthouse records, unrecorded easements, rights of parties actually in possession of the property - such as renters, and limitations on the use of the property, such as zoning restrictions, to name a few. An attorney can advise you how to avoid these and other risks not covered by the insurance. In addition to the standard policy of title insurance typically issued in residential transactions, other policies and endorsements to policies offer extended coverage not provided by the standard policy, including insurance against encroachments, such as structures that encroach upon the land of another, and against unrecorded easements. These extended coverage policies and endorsements are usually available for an additional premium. You should discuss them with the title company handling your transaction. If you have questions about title insurance, a lawyer who practices this type of law can advise you.
A deed transfers ownership of property from the seller to the buyer. There are several types of deeds, such as statutory warranty deed, special warranty deed, bargain and sale deed and quitclaim deed. The type of deed affects the buyer's rights against the seller and all former owners. The manner in which the buyer's name appears on the deed can affect the actual ownership of the property, the owner's tax liability, and the owner's estate plan.
A contract, a purchase money mortgage, and a note and trust deed are all formal obligations to repay the seller or other lender with whom the buyer has financed his or her purchase. Each of these gives the lender an interest in the real estate that secures repayment. To find out more about what a lender can do if the buyer does not pay for the purchase, read the Tel-Law topic entitled “Foreclosure on Real Property”.
A land sale contract is an agreement between the seller and the buyer stating the purchase price and how it is to be paid as well as all other rights and duties of both the parties regarding the payment of the purchase price. The buyer does not usually receive a deed to the property until all payments required by the contract have been made. Some forms of contract also may permit recovery by the seller without court action.
The primary differences in these documents are the rights and obligations of the lender and the buyer. Both the lender and the buyer should know the advantages and disadvantages of each document before signing anything. You may wish to seek a lawyer's advice on which document is best for your protection.
All documents of ownership of real property should be recorded, officially filed in the county in which the property is located. The documents must first meet requirements set forth by law. Failure to record certain documents can result in a fine or a lawsuit, or even the loss of the property.
Every real estate transaction has certain tax effects upon the parties involved. Often there are steps that can be taken to reduce or postpone taxes.
This information is from the Oregon State Bar's Tel-law service, a collection of recorded legal information messages prepared by the lawyers of Oregon. In addition to being online, the Tel-law service is accessible by telephone at 503-620-3000 or toll-free in Oregon only, 1-800-452-4776. A touch tone phone allows direct access 24 hours a day, 7 days a week. To receive a free Tel-law brochure listing the subjects available call 503-620-0222, ext. 0.