General Steps in Purchasing a Home in Massachusetts

          Buying a home is often times the single largest financial transaction encountered by most people. Therefore, it is highly recommended that you retain the services of a competent real estate attorney before making an offer to purchase a home.

The following are the general steps encountered by most buyers of residential real estate in Massachusetts.

1. OFFER TO PURCHASE- An Offer to Purchase ("OTP"), or sometimes called a Contract to Purchase, is a legally binding contract wherein a person seeking to purchase a home makes a written offer to do so that is contingent on certain events occurring. A typical OTP will provide a description of the property, a description of the purchase price being offered, and a date upon which the offer will expire if not accepted by the seller of the property. In order for the OTP to be binding, it must be delivered to the seller with a monetary deposit, usually in the form of a personal check from the buyer. A typical OTP is usually accompanied by a personal check in the amount of $500 - $1,000. The deposit will be applied toward the purchase price if the OTP is accepted by the seller. The OTP should also include a date upon which a Purchase and Sale Agreement (P&S) shall be executed by the buyer and seller. The P&S, which is described more fully below, will ultimately replace the OTP as the sole and primary written contract between the buyer and seller concerning the purchase of the property. The OTP should also state the date upon which a deed shall be conveyed to the buyer (i.e., the closing date).

          Moreover, it is extremely important that the buyer include the following contingencies in the OTP if they are applicable to the buyer's situation. First, an OTP should include a mortgage contingency clause which will make the buyer's purchase of the property specifically contingent upon the buyer's ability to secure a mortgage to finance the purchase price. Typically, the mortgage contingency clause will set forth an amount that the buyer is seeking to finance and a date upon which the buyer will secure the financing. Second, the OTP should include an inspection contingency clause which allows the buyer a short period of time, usually prior to the date upon which the P&S Agreement is to be executed by the parties, to have the property inspected regarding the general condition of the property, the existence of pests and termites, and any environmental concerns that the buyer may have such as radon gas or mold. Third, if the buyer is seeking to use the proceeds from the sale of her existing home to purchase the property, the buyer may consider putting a clause in the OTP that makes her purchase of the property contingent on the sale of the buyer's current residence. Upon presentation of the OTP to the seller, the seller will accept the terms of the OTP, reject the terms of the OTP, or reject the terms of the OTP and make a counterproposal that may seek a waiver of some of the contingencies or a higher price than offered. The buyer will then be presented with the counterproposal which she may accept or reject.

2. INSPECTIONS OF THE PROPERTY - After the OTP is accepted by the seller, but usually before the execution of the P&S Agreement by the buyer and seller, the buyer will usually retain the services of a licensed home inspector to inspect the property. The home inspection is typically performed before the P&S Agreement is executed by the parties because the P&S Agreement will require the buyer to put a significant additional deposit down on the purchase of the property and the buyer may not want to do so until such time as he is convinced that the property meets his expectations. In Massachusetts, home inspectors must be licensed by the Massachusetts Board of Registration of Home Inspectors. The buyer may also want to retain the services of other inspection professionals to test for the presence of lead paint, pests, wood destroying insects such as termites, and air quality issues such as radon gas and the existence of mold.

3.  PURCHASE AND SALE AGREEMENT - In Massachusetts the Purchase and Sale Agreement ("P&S Agreement") is the single most important document in a residential real estate transaction. It is a legally enforceable and binding contract that sets forth all of the conditions and contingencies related to the purchase of the property.

The P&S Agreement should include, at a minimum, the following provisions.

a. Description of the Property - This provision typically includes a description of the street address of the property, the approximate acreage of the property, and a reference to the book and page number of the seller's deed where it may be found at the local registry of deeds.

b. Fixtures and Personal Property - The purchase price of a property typically includes items that are permanently affixed to the property such as shutters, furnaces, and built-in air conditioners and dishwashers, etc. However, this provision should include or exclude items that the seller intends to leave or remove when moving from the property such as window blinds, light fixtures, TV satellite dishes, washer and dryer, refrigerator, etc.

c. Type of Deed and Quality of Title - Most P&S Agreements in Massachusetts require the seller to convey a quitclaim deed to the buyer which ultimately conveys whatever title to the land that the seller acquired and the seller warrants to defend the buyer against any claims and demands of any persons that attack the seller's title to the property. The P&S Agreement should also state that the deed shall convey "a good and clear record and marketable title" to the property. This means that the seller agrees to provide the buyer with title to the property that is clear of any liens and is marketable.

d. Purchase Price - This provision should spell out the amount of money that has been previously paid to the seller as a deposit with the OTP, the amount of money that is being provided to the seller with the executed P&S Agreement as a further deposit on the property, and the additional amount of money that the buyer needs to bring to the closing.

e. Closing Date ("Time for Performance") - The date, time, and place of the closing is specifically identified.

f. Possession and Condition of the Property - There should be a provision in the P&S Agreement that states that the property shall be transferred to the buyer free of all occupants, personal property, and shall be in "broom swept condition." The provision may also say that the property should be in the same condition as it is as of the date of signing of the P&S Agreement, excluding reasonable wear and tear incurred thereafter.

g. Extension to Perfect Title - After the execution of the P&S Agreement by the parties, the attorney for the buyer, or the attorney for the buyer's mortgage company or bank, will conduct an examination of the title to the property at the registry of deeds. If that examination uncovers a flaw in the title, this provision allows the seller to extend the closing date for a period of no more than 30 days so that the seller may clear-up the title. A buyer's attorney typically will request that language be added to this provision that grants the seller additional time to clear-up the title for only so long of a period of time during which the buyer's mortgage financing commitment or rate lock remains in place.

h. Escrow of Deposit - The two deposits made on the property by the buyer (i.e., the deposit made with the OTP and the deposit made with the signing of the P&S Agreement) are typically held in an escrow account by the seller's attorney or the seller's real estate broker. This provision requires that the funds be held in a segregated bank account and states that if there is a disagreement between the parties, the escrow agent shall retain the deposits until the seller and buyer provide mutual written instructions to the escrow agent.

i. Buyer's Default Damages - This provision states that if the buyer fails to close on the property on the closing date, the seller shall retain the deposits as "liquidated damages." This provision typically is the seller's sole remedy if the buyer defaults on the P&S Agreement. Conversely, if the seller defaults on the P&S Agreement and refuses to return the deposit to the buyer, the buyer must file a lawsuit seeking to recover the deposit or seeking an order that the seller must transfer the property to the buyer pursuant to the terms of the P&S Agreement.

j. Warranties and Representations - It is very important that any warranties or representations made by the seller that the buyer is relying upon be specifically identified and listed in this provision. This could include oral representations or written representations made by the seller or the seller's real estate agent upon which the buyer is relying upon in agreeing to purchase the property. For example, if the buyer is purchasing a condominium unit and has asked the seller whether or not the condominium association is expecting any special assessments in the near future, the buyer may want to include the seller's answer to this question in this provision.

k. Mortgage Contingency Clause - This provision is very similar to the mortgage contingency clause included in the OTP. In this provision, the buyer will be obligated to apply for mortgage financing of a certain amount. The buyer will be obligated to make diligent efforts to obtain a commitment for a mortgage on or before a certain date, which typically is 2-4 weeks before the closing date. If that date arrives and the buyer has not secured a mortgage, the buyer must notify the seller that he is unable to secure a mortgage commitment and therefore must terminate the transaction. However, if the mortgage contingency date passes without the buyer making such notification to the seller, the buyer will not be able to terminate the transaction due to an inability to obtain mortgage financing.

l. Notices - This provision should specifically identify the manner in which the buyer and seller shall notify each other in the event that it is necessary prior to the closing. Typically, the name, address, telephone number, and fax number of the attorneys for the buyer and seller are listed in this provision.

m. Access to Premises - The buyer will typically want to include a provision in the P&S Agreement which allows access to the property upon reasonable notice to the seller so that an appraisal and plot plan may be performed by the buyer's bank.

o. Destruction of Premises- This provision typically states that in the event that the property is destroyed or substantially damaged by fire or other casualty prior to the closing date, the buyer shall have the option to void and terminate the P&S Agreement.

p.  Repairs to Premises - Sometimes the buyer may ask the seller to perform certain repairs to the property prior to the closing date. If so, those repairs should be listed in the P&S Agreement.

4. FINANCING OF THE TRANSACTION - The buyer will often times begin to secure financing for the purchase of a property even before he begins to search for a property. However, it is essential that the buyer work diligently to secure financing for the transaction immediately after the P&S Agreement is executed. The buyer should tell the bank or mortgage company the date upon which the mortgage contingency clause in the P&S Agreement expires; the buyer should obtain from the bank or mortgage company a "mortgage commitment" before the expiration of that date. A mortgage commitment is a promise by a mortgage company or bank to the buyer that it will lend a certain amount of money to the buyer at a certain interest rate under certain terms and conditions. The mortgage commitment may include conditions that the buyer needs to meet before the loan may be closed such as providing tax returns and other financial related documents.

5. TITLE EXAMINATION - In Massachusetts, the mortgage company or bank will typically retain the services of an attorney to represent its interests during the transaction. This attorney does not represent the buyer; rather, this attorney represents only the bank. The attorney for the lender typically performs the examination of the title to the property to ensure that the bank's interests are protected. The title examination involves a search at the applicable registry of deeds regarding documents in the property's chain of title. The title examination ensures that the seller has good title to the property according to the records at the applicable registry of deeds. Most banks require the borrower/buyer to pay the fees of the bank's attorney and the fees to examine the title to the property.

6. MORTGAGE PLOT PLAN - Most banks will retain the services of a registered land surveyor to prepare a plot plan of the property. Generally speaking, the purpose of the plot plan is to ensure that no abutting properties or structures encroach on the subject property, that the subject property is not in a flood zone, and that the buildings on the subject property have been placed on the property in a manner consistent with the town's zoning ordinances. The buyer typically pays for the plot plan.

7. TITLE INSURANCE - Title insurance provides the policyholder protection from certain title-related losses. Although a title examination is conducted and the search of the records at the registry of deeds is expansive, this search may not uncover all title flaws or title-related issues. Thus, the bank or lender requires that the buyer obtain and pay for a title insurance policy that protects the bank from any title-related losses. This lender's title insurance policy protects only the bank in the event that a title flaw is uncovered while the borrower/buyer's mortgage is still outstanding and unpaid. The buyer has the right to purchase an owner's title insurance policy which would protect and defend the buyer against any insured title-related claims. A basic owner's title insurance policy protects the buyer against potential defects such as forged deeds, forged mortgage satisfactions, deeds by persons who now claim to have been insane or mentally incompetent at the time of the conveyance, deeds by unauthorized corporate personnel, deeds that are challenged by prior owners as having been given under fraud, undue influence or duress, a deed executed under a falsified power of attorney, etc.

8. CLOSING OF THE TRANSACTION - In Massachusetts, generally speaking, at the closing of the transaction, the seller provides a deed to the property to the buyer and the buyer provides the remaining portion of the purchase price to the seller. However, there are several other documents that are exchanged between the parties including a Smoke and CO Detector Certificate and Septic Certificate Letter (if the property is served by a septic system).