This overview on Real Estate Law covers everything from rental agreements and buying a home to foreclosure and land use laws.
Real estate law may sound like a complicated subject that most people never have to deal with, but the reality is that real estate law has a tremendous impact on nearly every person’s life.
A home is the biggest purchase most homeowners make. And if you are not a homeowner, rent is probably your biggest expense. In fact, most Americans spend more than ⅓ of their budget on housing costs according to the U.S. Bureau of Labor Statistics.
So while most people don’t hire a lawyer when they purchase a home or sign a lease, real estate law still provides the framework for those actions and plays a huge role in the background.
Is your landlord allowed to charge a late fee? That’s dictated by landlord-tenant laws. Can a new factory open up down the street from your home? That’s covered by land-use and zoning laws.
Other times, people find themselves more squarely grappling with real estate law, whether it’s because they have a dispute with their landlord or they are facing foreclosure on their home.
So whether you ever have to hire a lawyer or not, real estate law has a huge impact on your life and on your budget. Here is an overview of some of the key aspects of real estate law that you might run into.
There are actually more homeowners in America than renters, but more people than ever are choosing to rent, even if they can afford to purchase a home. And if you rent, you likely signed a lease agreement, which is essentially the contract between the landlord and the tenant.
When entering any lease or rental agreement, the landlord and the tenant both have rights as well as obligations. For instance, a renter’s most fundamental obligation is to pay rent, and in exchange they receive the right to occupy the property. On the flip side, a landlord has the right to receive rent payments, and is obligated to make necessary repairs and maintain the habitability of the property.
The lease (or rental agreement) is a key document that sets out many of these rights and obligations that the landlord and tenant each have. The document is typically called a “lease” for agreements that last a year or more, whereas agreements for 30 days or less are generally referred to as “rental agreements.”
Some of the terms typically included in a lease are:
Some landlord and tenant rights and obligations are dictated by law, but others will be dictated by your lease agreement. For instance, most leases say rent is due on the first day of the month, but there is no law that requires rent to be due on that day. Your lease could make rent payments due on some other day of the month.
Landlords often require a security deposit, though some states limit how much a landlord can request for a security deposit. In New York, for instance, recent changes make it illegal for a landlord to ask for a deposit that is greater than one month’s rent.
Landlords may deduct costs from the security deposit for necessary repairs at the end of a lease, though this does not include costs associated with normal wear and tear. State laws also address how quickly a landlord must return a renter’s security deposit.
Keep in mind, though, that a security deposit is not intended to replace the last month’s rent.
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Evictions are stressful and disruptive, for both tenants and landlords. But they are more common than you might expect - as many as 3% of all non-homeowners were either evicted or moved due to threat of eviction between 2016 and 2018.
And while evictions are obviously more disruptive for the tenant, who is forced to move out of their home, evictions are expensive and unappealing for landlords as well - they can’t just kick tenants out, and state laws dictate the particular legal process that must be followed. These processes can be lengthy and cost several thousand dollars.
The federal government has halted evictions due to non-payment of rent during the Coronavirus Pandemic, with a CDC order declaring a moratorium on evictions through at least March 31, 2021. Keep in mind that there could be even more generous eviction protections currently in place in your city or state.
For more information, check out our article on how to handle an eviction notice.
Buying a home is a big deal - it’s an exciting life event, and it’s also probably the biggest purchase you’ll ever make.
And because it’s such a big purchase, most people do not pay cash or simply cut a check to purchase their homes. Accordingly, buying a home takes careful financial planning, and usually taking out a mortgage.
There are two main types of mortgages:
The names say it all - in a fixed rate mortgage, your interest rate is fixed and does not change over time. The interest rate for adjustable rate mortgages, however, can change over time.
Adjustable rate mortgages can seem appealing because they often offer lower introductory rates, but you can easily end up spending more money in the long run. (Adjustable rate mortgages also got a bad rap following the 2008 financial crisis, but they are making a bit of a comeback).
The key is doing your research to understand the pros and cons of each option so you can make an informed decision about what works best for you.
Whichever type of mortgage you choose, a key step will be getting preapproved. This will depend largely on your credit score. Generally speaking, the better your credit score is the larger the loan, and the lower the rate, that you are likely to be offered.
Lenders will also consider factors such as your monthly income and how long you have held your job. The location where you are purchasing your home is also relevant.
Purchasing a home can be expensive, and not just because of the price of the home. Aside from the cost of the home itself, which people generally do not pay in one lump-sum anyways, there are a number of transaction costs involved.
Down payments are typically 20% of the purchase price (unless you qualify for an FHA insured loan). Additionally, various closing costs can typically run about 2-5% of the purchase price. These costs may vary by region, and some states or cities charge additional fees that are not included in other localities.
Examples of closing costs include things such:
So as you can see, buying a home is a big decision. It is both an exciting moment in your life, as well as a substantial investment. It’s important to consider your options, take stock of your finances, and think through the pros and cons of owning versus renting before purchasing a home.
There are a few different categories of land use laws, including:
Zoning regulations are probably the most common form of land use regulation. Their primary function is to regulate the use and development of real estate by dividing areas into residential, commercial, and industrial zones.
Zoning regulations can also be far more detailed, such as regulations regarding the height and size of buildings, or establishing building setbacks from streets. Common (and sometimes controversial) regulations also include restrictions that limit areas to single-family dwellings.
But single-family dwelling restrictions are far from the only zoning regulations that can be controversial. Ultimately, zoning regulations are restrictions on how you can or cannot use your property, so it is no surprise that people sometimes take to the courts to protect their rights.
Two things Americans love are their property rights and filing lawsuits. These two passions combine to produce a lot of litigation regarding land-use and zoning regulations.
There are a variety of grounds on which someone might challenge a zoning regulation. Namely, zoning ordinances must be reasonable in light of all factors involved, including:
Many jurisdictions have created boards of zoning appeals which are specifically designed to conduct hearings and address zoning disputes. (These boards and their decisions are in turn subject to court review).
One question which sometimes comes up is at what point a land-use regulation amounts to a constitutionally prohibited “taking” of private property without just compensation.
Eminent domain occurs when the government takes private property for public use. In order to do so, the government must pay “just compensation” to the property owner.
The “public use” requirement means the government can’t just take your property and give it to your neighbor just for your neighbor’s own benefit. And if the government does take your property, you must be fairly compensated. (Note, though, that “just compensation” is measured by the fair market value of your property if you were to put it up for sale, and not the value of the land once it is acquired and put to some new use).
Examples of eminent domain could include taking property in order to widen a freeway, or for conservation efforts to expand national parks or preserves.
The government is not the only source of land use restrictions, though. Certain restrictions could also be implemented by landowners and land developers. The most common forms for such restrictions are restrictive covenants and easements.
Restrictive covenants forbid certain uses of property. That is, they restrict the property owner’s ability to use the property in some way. Examples of restrictive covenants include restrictions on your ability to rent out your home, what types of pets you may have, or even what color you can paint your home.
Easements, on the other hand, grant another person a right to use someone else’s property for certain limited purposes. Easements may also be used to accomplish public objectives, such as restricting development on a parcel of land in order to preserve it as a greenspace for the public’s benefit.
A classic example of an easement is if you can’t access your property without crossing some portion of your neighbor’s property. In this situation, an easement would grant you the right to travel across part of your neighbor’s property in order to access your land.
Foreclosure is the legal process by which a lender re-takes possession of your home if you have missed mortgage payments and have entered default.
There are two main types of foreclosure - judicial foreclosures and non-judicial foreclosures. The key difference is whether the mortgagee (lender) must go to court to prove it owns the mortgage and has the right to foreclose, which is required in a judicial foreclosure but not for non-judicial foreclosures.
Foreclosures are largely covered by state laws and regulations, and which type of foreclosure is allowed varies by state.
There are various ways of trying to avoid foreclosure, including:
Be aware - there are scams specifically centered around foreclosure. Scammers realize that if you’re at risk of foreclosure, you’re in a tough spot. Tips on how to avoid foreclosure scams can be found here.
And though it may not be your most pressing concern if you are facing foreclosure, you should be aware that a foreclosure will negatively affect your credit score. If you are facing foreclosure and want to know your options, check out our articles on whether to hire a foreclosure lawyer and how much a foreclosure lawyer costs.
Many large cities have special courts designed specifically for handling housing issues. These are not really a separate court system, and are instead just a part of the general civil court system that specializes in housing issues.
Housing courts are designed to hear certain types of cases, such as:
Even in places that have housing courts, not all housing disputes go to housing court. The idea, though, is to more efficiently resolve many of the most common housing related disputes.
If you find yourself in housing court, one thing to be aware of is that landlords will typically be represented by a lawyer in housing court. So not every dispute is worth lawyering up, and you may be concerned about the costs of hiring a lawyer. But it’s important to be aware that you may be at a disadvantage if you do not also have a lawyer to represent your interests.