Residential Real Estate Law

1. What forms of financing are available?

2. What is an adjustable-rate loan?

3. What is a purchase and sale agreement?

4. What is a non-conforming use?

5. What happens if I die without a will?

1. To purchase real estate, you need money. You can do it if you have cash, but if you don’t have cash, you could borrow money from your seller. That would be owner financing. You can borrow money from a mortgage company or a bank. You could have an FHA loan, a VA loan, a conventional loan. You could have special types of financing through housing agencies in the state. In Kentucky, we have the Kentucky Housing Corporation. We have other types of creative financing when you purchase property. Sometimes those go outside the bounds of what is appropriate, but in some situations, it does not. For example, one lender may require a first and second mortgage in order to obtain the full purchase price on a loan. Financing comes in many different ways, but the main ones are conventional, VA, and FHA in a residential transaction.

2. Adjustable rate loans are used to enable buyers to finance real estate purchases. Where they don’t have the ability to pay the going rate, an adjustable rate gives them a hedge against that higher current rate. For example, on an adjustable rate loan, you may get a 4.5% rate, whereas on a fixed rate, you had to pay 5.5%. The difference is, is that on an adjustable rate loan, its term is going to expire after, say, five years. We call that a five-year arm. After five years, your rate adjusts to whatever current market rates are. There is some risk involved in an adjustable rate loan, but it is a very useful method to enable people to get into homes where their income levels are expected to go up over time.

3. A purchase and sale agreement is a real estate contract. The real estate contract sets forth all of the conditions of the transaction. The seller expects to receive a selling price. The buyer has to come up with the money to pay for it. Usually, there’s a deposit provided for and financing terms are set forth in the contract. Other items in the contract might be tangible personal property that’s going to stay with the property, such as refrigerator, stove. A financing contingency, a property condition contingency, inspections, for example, termites or radon or other types of conditions that might lead a buyer not to want the property, that’s set into the contract to protect the buyer. The seller’s protections are perhaps less, but there is protection that the buyer must come through if those contingencies are met. Clear title has to be provided by a seller, and that’s set forth in the contract. Also in the contract is who pays what costs at closing.

4. If you’re going to buy a business that’s located on real property, that business must have proper zoning in order to function. For example, you’re going to a generally residential neighborhood and there’s a corner gas station. That corner gas station is out of place in residential neighborhood, unless there’s proper zoning. But let’s say the gas station was in existence before the zoning laws came into effect and the property is otherwise zoned as a residential use. The gas station owner can continue to use that property because the use was prior to the zoning laws. It’s a non-conforming permitted use. The only problem is when the landlord tries to expand upon that use, for example, buying the property next door to try to make it a larger gas station, or building another level on the property, or in some way changing the type of use of the property. You need to stick with the type of use in order to protect that non-conforming use from zoning violations.

5. That means you’re dying intestate, and you should always try to go to a competent attorney and get a will. In Kentucky, if you die without a will, and let’s say you have a spouse and children, the property’s going to go one half to your spouse and one half to your children. In Florida, if you have a spouse and you have children from that spouse alone, your property’s going to go all to your spouse. However, if you have children from a prior marriage additionally, then one half of your property will go to your spouse, and one half of your property will go to your descendants. To make sure that you don’t have to depend upon the laws of intestacy and you have more certainty, get a will.