Most first-time real estate clients have difficulty understanding the basic terms used during their transactions. To help them understand the process, there are five legal terms they should know.
Familiarizing clients with these concepts not only empowers them but also facilitates smoother communication and decision-making throughout the buying or selling journey.
1. Title
The title refers to ownership of land. When someone has the title to a property, it means they are the legal owner of the home and have the legal rights and responsibilities of property ownership.
Different types of titles impact what happens to the title at the time of sale or the owner’s death, including but not limited to:
- Individual titles: Belonging to a single owner with the title passed down as part of their estate to a named beneficiary or by state succession laws if a will is not discovered.
- Tenants in Common: Two people own the title and pass their title to their heirs independent of any preference of the other tenant or based on state succession laws regardless of the other owner still living.
- Joint Tenancy: Two individuals who pass their title to the surviving title holder and then to the survivor’s named beneficiary at their death. If there is no beneficiary, the title is passed on based on state succession laws.
- Tenants by the Entirety: Married couples gain protection against each other’s creditors seeking relief against the property. Spouses pass their title to the surviving title holder and then to the last to die’s estate. The title defaults to state succession laws if a beneficiary is not named. In the event of a divorce the tenancy becomes a Tenancy in Common (unless the Divorce Court Rules otherwise). In the event of a separation or move to another primary residence, the tenancy reverts to a Joint Tenancy.
A deed proves ownership and must be signed by the previous owner to transfer the rights of the property to the new owner.
2. Contingency
Contingencies are clauses added to the purchase agreement specifying requirements or actions the buyer and seller must fulfill for the contract to close. If a contingency is not met, the terms of the contingency can prevent a closing notwithstanding the fact that there is otherwise a binding contract.
3. Escrow
Escrow requires a third party to hold legal documents and funds on behalf of a buyer and seller until certain steps and conditions are completed during the transaction. The party then distributes the funds according to the buyer’s and seller’s instructions, or if no agreement can be reached, then based on a Court Order..
4. Disclosure
The Illinois Residential Real Estate Property Disclosure Act requires home sellers to disclose information that will lead to costly repairs. This does not include unknown issues, and instead applies to issues, defects, and repairs that the property owners are aware of, including:
- Material defects, flooding, and hazardous or harmful elements
- Water damage
- Plumbing issues and defects
- Structural damage and repairs
- HVAC problems and concerns
- Issues and prior damage to a home from termites, lead, windows & doors, fires, etc.
- Past manufacturing of methamphetamines on the property
- Problems with septic systems
- Repairs and problems with windows, doors, and other fixtures
5. Lien
A lien is a claim related to debt or obligation.
Liens prevent owners from selling their homes until the debt is paid or the obligation fulfilled or released. Liens can include mortgages, judgments, taxes, and municipal claims. Liens, such as Mechanics Liens, can also include claims by people who have contributed to the value of the home or worked on the home to make repairs or replacements such as contractors or HVAC companies. Creditors must go through a court process to realize on their lien through a foreclosure process. The lien remains in place until the debt is paid, obligation fulfilled, or a settlement reached.
Sharing these definitions with your clients will help them navigate transactions with a better understanding of the process.
The Minchella & Associates Difference
With over 40 years of experience in Illinois real estate law, Erica Minchella has represented thousands of home sellers and buyers, landlords, and commercial and investment property owners. For more information, schedule a consultation today.
