Real Estate Buyer’s Guide to Legal Services
A purchase of a home or acreage in Maine can sometimes seem to be a mystery when it comes to understanding what the role of the lawyer is and what those professional services involve. This guide is one lawyer's attempt to help you understand both.
Every real estate transaction has different components, some or all of which may require legal services. The extent to which legal services are required necessarily will affect the overall cost. The principal areas of legal services on a residential real estate transaction are the Purchase and Sale Agreement, title examination, financing documentation and closing.
Purchase and Sale Agreement. Maine law requires that agreements to purchase real estate be in writing. Where a Realtor is involved the usual practice is that a Purchase and Sale Agreement will be on a standard form prepared by the Realtor. Depending upon the nature of the transaction, it may be advisable to have an attorney involved. This is particularly true if special conditions are required. Because the agreement is the framework for the sale and places obligations on both the buyer and the seller, it is recommended that the agreement be reviewed if not drafted by an attorney. If there is no Realtor the agreement is usually prepared by the buyer's attorney.
Title Examination and Opinion. These services are to obtain a legal opinion that there are no defects in the title and that the person who is selling truly owns what is being sold. If there is to be any financing of the purchase this will be required by the lender. The scope of this review depends largely upon the condition of title and prior title work.
When there is no prior title work, a full examination of the title record for a period of at least forty years is required by the Title Standards of the Maine State Bar Association. The search of the public records may be performed by an abstractor hired by your lawyer. The abstracting services are at a fixed hourly charge, usually around $35.00 per hour. Some attorneys prefer to do their own title examination. In either event the amount of work required will depend upon the complexity of the history of ownership. A full title search by an abstractor may cost between $250 and $500 if a single parcel is involved. Cost savings can be achieved if in fact there is prior title insurance or a prior title opinion from a recognized local attorney and all that is required is an update from that prior work. In these circumstances the abstracting cost would be in the range of $30 to $60.
The real unforseen in title work is the time that may be required if there are title defects. Although the clearing of the defects is a matter that is the responsibility of the seller, it needs to be done in a manner which is satisfactory to you and your attorney. Sometimes this requires negotiation, sometimes it requires direct participation in the redrafting of documents. It is difficult to estimate what might be involved because until the actual title examination is complete you do not know the specific problem that needs correction. Typical matters which might arise would be the need for a release of a lien, a boundary agreement with a neighbor, an easement for access, utilities or water frontage purposes, or an affidavit to clear a title issue as to outstanding interests.
Financing. If you are getting a loan from a financial institution, your attorney may be required to prepare the mortgage as well as certain closing documents either for title insurance purposes or by the lending policies of the institution. The extent of legal services tends to be greater with out-of-state financial institutions and with lenders that intend to sell the mortgage in the secondary market because more documentation is required. If the seller is providing owner financing there is a need to prepare a mortgage and a corresponding note. If that is a possibility, it is recommended that the Purchase and Sale Agreement provide that the cost of these legal services be an expense of the seller.
Closing. If no bank financing is involved local practice is that the buyer's attorney serves as "settlement" or "closing" agent and is responsible for receiving and disbursing all funds and making certain that all required documents are completed and recorded. If there is bank financing it is not required that an attorney be present at closing. Some financial institutions require attorney participation. In the event of bank financing, closing will typically take one to one and one-half hours. At the closing, there will be a review and execution of the Lender’s documents with the loan officer or other agent of the Lender. This typically is time-consuming and involves your signing a number of documents, usually because of the requirements of federal truth in lending laws and the loan requirements of the Lender. Lastly there is the actual closing, where the documents comprising the sale transaction are completed and exchanged with the seller. Closing can require additional legal services if in fact you do not intend to be present. In that event, either your attorney or some other person you designate to act in your place under a power of attorney should be present. Also special arrangements typically need to be made for the wire transfer of funds.
It is local practice that your attorney is paid from proceeds at closing. That billing will be either an amount certain or an estimate. Because the bill needs to be prepared several days prior to the closing, some lawyers prefer to estimate so that if additional services are required, those may be billed separately after closing. Usually your lawyer oversees the recording of the deed, mortgage and any other document required to clear title. A final report of title will be required if there is a title insurance policy to be issued. If the attorney is acting as closing agent, there are reports to be made to the IRS and to the Maine Bureau of Revenue Services if the seller is not a Maine resident. Other follow-up matters may concern the payment of municipal tax (property tax) as well as circulation of the recorded deed and mortgage and issuance of the title insurance policies.
Other Expenses. The State of Maine has a real estate transfer tax in the amount of $2.20 per $500 of consideration. By law this is divided equally between the buyer and the seller. It is a tax that is paid at closing. Maine also charges a recording fee for the deed, mortgage and any other documents to be recorded. That fee is a minimum of $16.00 and increases with the number of pages and names to be indexed. Documents to clear title are the recording expense of the seller. Documents transferring title to the buyer and to evidence financing are the buyer's expense.
To the extent you choose or your Lender requires title insurance, the premium is typically $3.00 to $3.30 per $1,000 of consideration for an owner’s policy. The Lender’s policy may be an additional $100.00, depending on the number of endorsements. If only a Lender's policy is required, then the premium rate may be $1.75 per $1,000. There are other options which you can discuss with your attorney depending upon the nature of the transaction. If your attorney is the agent for the title insurance company a commission wil be earned on that policy.
A survey may also be required. If it is improved property your Lender will likely require a mortgage loan inspection report showing that the buildings are within the boundary lines. Depending upon the surveyor, costs range from $400 to $500. A more detailed survey may be required, particularly if there is a serious boundary question. It is recommended that if this is the case, it be contracted as an expense of the seller. These costs can be several thousand dollars.
Cost of Legal Services. Depending upon the lawyer and the services required, the services may be charged either on an hourly fee basis or for a fixed amount. You should inquire as to the fee arrangement and obtain an estimate when you first meet with your lawyer.
The purchase of real estate is a major undertaking and investment. Your attorney can be of considerable help in making it both a pleasant and a professional experience.
