4 Buyer Contingencies You Need In Your Home Purchase Agreement

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As you already know, buying a home is not like any other purchase that you make. For most people, buying a home is an an event that occurs just a few times in their lifetime. It's a big deal and unlike buying a laptop or a pair of jeans, you can't return a house once the deal is done. That's why it's important to make sure you give yourself as many "outs" as possible before the purchase of your next home is final.

What we mean by "outs" is conditions, or contingencies, that must be met before the purchase of the home is finalized. In other words, it's a term in the purchase contract that essentially states "if X happens then buyer may cancel the contract". Typically there is a period of time between signing the contract and "closing" when both parties work to satisfy all of the contingencies. The more contingencies a buyer has, the safer the buyer is from unexpected problems that may arise with the home and its purchase.

While a buyer may come up with as many contingencies as he or she wants (and a seller may not agree with all of them) there are four contingencies that are fairly standard and that should be included in every home purchase agreement.

1. Home Inspection Contingency

This contingency is likely the most common. It allows the buyer to inspect the home, or pay a licensed inspector to do so, and if the buyer is not satisfied with the home's condition (maybe a faulty roof or foundation is discovered), the buyer can back out of the purchase agreement. This condition is really a must-have for any home buyer.

2. Home Appraisal Contingency

Here, the buyer's obligation to purchase the home is conditioned on the appraisal value of the home not being less than the purchase price. Besides not wanting to pay more for something than it's worth, a lender will often not approve a loan for greater than the appraisal value of the home. That's why it's important to include an appraisal contingency in your next home purchase contract.

3. Financing Contingency

This condition is also fairly common. It allows the buyer to cancel the purchase if the buyer is unable to secure a loan on the home. While preapproval letters usually give some indication that an acceptable loan is available, sometimes loans fall through the cracks at the last minute and cannot be obtained. For this reason, it is smart to include a financing contingency so that you are not stuck buying a home without any means to pay for it.

4. Insurance Contingency

While not as commonplace as the others, this contingency may be just as important. This conditions the purchase of the home on the buyer's ability to get homeowner's insurance. Sometimes insurance coverage is denied on older homes (due to potential mold or other problems) or homes that are in high risk areas for natural disasters (such as earthquakes, landslides, or floods). If there is any chance that your insurance coverage may be denied on the new home then this contingency becomes crucial.

These four contingencies are considered the most common and every buyer should make sure they are included in their home purchase agreement. In fact, you only have to check a few boxes in the standard Utah Association of Realtor's Purchase Agreement to include the first three contingencies.

There are others conditions you can add as well, such as a contingency on the buyer selling his or her existing house before having to buy, but these other contingencies often must be negotiated and a seller may not agree to them.

So before you buy your next home, make sure you, or your real estate attorney, have reviewed the purchase contract to ensure you have given yourself enough "outs".  This simple step may up end saving you from buying the wrong home or incurring significant liability. 

 

How often should the CC&R's of my homeowners' association be updated?

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Almost all homeowners' associations (HOAs) have rules and regulations, called Covenants, Conditions, and Restrictions (CC&R's), regarding the ownership and maintenance of the community. These CC&R's are often extensive and may have the most minor of restrictions such as the color of paint each house may have or how tall a fence may be.

Strictly speaking, these CC&R's may become outdated every year due to the constant revisions of state law affecting community developments.

The three main laws in Utah that affect homeowners' associations are:

  • The Utah Condominium Ownership Act;
  • The Utah Community Association Act; and
  • The Utah Non-Profit Corporation Act.

Virtually every year there are revisions to one or all of these Acts.  These changes are mostly minor but they begin to add up if they go unnoticed every year. 

The ideal scenario is to have your CC&R’s reviewed every three years to see if an update is needed. Typically revisions will be needed every three years and almost certainly every five years. 

It is important that the CC&R's are updated to ensure that the HOA is not violating any laws. The association’s board makes management decisions in accordance with the CC&R’s and if these documents are not updated they can be contrary to the latest legislation.

It is recommended to speak with a local real estate attorney to determine if your CC&R's need to updated. By communicating with an expert in this field, you will have confidence that your community is in compliance with the most recent legislation.

How changing ownership of your rental property to an LLC can protect you from liability

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For those that are fortunate enough to own investment or rental properties it is important to make sure that you are protected from any liability related to your property.

For example, if you are listed individually on the title to the property, and someone gets hurt on your property, then you may be personally liable for any damage that results. This means that your home, cars, bank account, etc. are on the line if someone sues you because of an issue related to your rental property. 

Having an LLC listed as the owner of the property is a way to avoid this personal liability. 

In other words, when property is owned by an LLC, it is only the LLC that can be successfully sued. For instance, if your tenant is upset because he or she feels repairs to the property haven't been made in a timely manner, your tenant can only successfully sue the LLC and not you personally (assuming you are properly separating yourself from the LLC). 

In Utah, forming an LLC for the purpose of owning your investment or rental property is a common and fairly straightforward process.

  1. To begin, if you have a mortgage on your property it is important to contact your lender to make sure it is okay to transfer title to an LLC.
  2. Once you have the okay from your lender, you can form your LLC.
  3. Your next step is to transfer title to the property to your LLC. This is usually done with a warranty deed or a quitclaim deed.
  4. Once you've signed the deed, don't forget to record the deed in the county where your property is located.
  5. It is also critical that you set up a bank account for your LLC. This is used to receive rental income and pay expenses such as property taxes and repairs.
  6. Lastly, you should amend your lease agreement so that the LLC is listed as the landlord. This will shield you from any lawsuit brought by your tenants for breach of the lease agreement.

As soon as you have followed all of these steps you will be essentially shielded from any liability that may arise from your ownership of the property. In addition, you can enjoy the tax benefits of writing off expenses related to your property.

For those that have multiple investment or rental properties, it is recommended that you set up an LLC for each property that you own. That way each property is shielded from liability arising from other properties. 

 

My neighbor's tree branches and roots are damaging my property, what can I do?

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It is always best to talk to your neighbor first to let him or her know of the problem and to see if you can work together and/or share the costs of solving the problem. If your neighbor is unwilling or unable to help then you may need to take the matter in your own hands.

Your first option would be to cut back the tree branches or roots that are encroaching onto your property. Although not addressed in Utah courts, most jurisdictions allow property owners to cut back the roots and branches that encroach onto their property. Before doing so, however, it is best to give your neighbor notice of what you are planning to do, especially when needing to trespass onto adjoining property to cut the branches or roots.

Note, however, that if the tree is a heritage tree then you may need to file an application with the Utah Division of Forestry, Fire and State Lands before altering or cutting back the tree.

Your second option would be to bring an action for nuisance if your neighbor is unreasonably using the tree to cause you damage. In Utah, a lawsuit for nuisance is determined on a case by case basis and whether a nuisance is actionable depends on the reasonableness of the use of the tree in the particular locality, under the circumstances of the individual case. Cannon v. Neuberger, 268 P.2d 425, 427 (Utah 1954). As such, it may be helpful to contact a local real estate attorney to determine if a nuisance lawsuit has merit.