By Stephanie Reid, Avvo attorney and NakedLaw contributor
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If you’re thinking it’s time to sell your home, there are a few legal issues to consider before posting that “For Sale” sign. Whether you are parting ways with your spouse, planning to upgrade or downsize, or selling out of financial necessity, you should protect yourself from pitfalls awaiting the unsavvy seller.
Here are four steps you can take to avoid common issues that pop up during the residential home sale process.
Resolve debts, encumbrances and liens
If your property has incurred any sort of debt, encumbrance or lien, you will need to take care of this prior to settling with your buyer. This obstacle can arise in any number of ways, including through:
- Federal, state or local tax liens
- Civil court judgments
- Child support or spousal support missed payments
- General unpaid debts
- Failure to pay homeowners association dues
Of course, the outstanding amount will vary greatly from homeowner to homeowner, but one thing is certain: The lienholder will get paid.
If you are facing a major tax lien or civil judgment attached to your property, selling your home will not get you out of trouble, especially if you try to hide the debt or defraud the buyer. The lien will, without question, appear on a title search ordered by the buyer and will become a deduction from your sale proceeds on the day of closing.
Get joint tenants on the same page
The ownership structure of your property may impact your ability to sell, especially if you inherited the property with several family members as joint tenants. If this is your situation, your options for selling the property are limited.
You can either gather consent from all owners or try to divide the property in your state’s court of equity, which is usually a lengthy, expensive and highly combative process. In other words, before you attempt to sell jointly owned property, you need to get everyone on the same page and agree on how to split the net proceeds after the sale.
The same holds true if you and your spouse are going through a divorce and have mutually decided to sell the marital home. If the property was owned through joint tenancy or tenancy by the entirety, both owners will need to sign the transfer deed over to the new buyers and agree to split the proceeds accordingly. Trying to sell the house out from under your ex probably won’t work, and you could face serious fraud consequences for trying it.
Draft a home sale agreement, if needed
While other countries have set up laws granting property and ownership rights to unmarried domestic partners, the vast majority of U.S. jurisdictions have yet to catch on to this trend — much to the dismay of domestic partners seeking to sell their home or purchase property.
One of the best ways to ensure the process goes smoothly is to encourage open communication and clearly set contract terms that determine the profit division after the sale, especially if one partner is not on the deed.
Prior to engaging real estate professionals, sit down with your partner and go over the current financials of the property, including outstanding mortgage debt, asking price and your agreed-upon bottom line offer threshold.
From there, discuss the ownership expectations of both parties: Is it 50/50? 40/60? 25/75? This conversation may feel awkward at first, but it is the best way to protect each party’s investment in the property, which includes payment toward the mortgage, improvements, sweat equity and upkeep.
Once these issues are decided, have an experienced real estate attorney draft a home sale agreement that sets forth the allocation of proceeds upon sale, the responsibilities of each party with regard to debts or encumbrances, and any other terms agreed upon between you and your partner.
With this agreement in place, you are both protected from the pitfalls of litigation in the event the relationship — or the deal — crashes and burns. Otherwise, the court will only be able to help the party named on the deed as the owner.
Gather important documents
Finally, as you prepare for the sale of your home, it helps to compile all the important documents related to the value of the property, such as:
- Evidence of encumbrances, liens, judgments, etc.
- Documentation of major repairs, damage or improvements
- Any agreements made between tenants or co-habiting partners
- Comparable sales in the area (if available)
- Any agreements made between you as the seller and your real estate agent (if applicable)
- Copies of restrictive covenants imposed upon the community, as this information will be highly relevant to prospective buyers
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Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.