As real estate practices vary considerably from state to state, we have prepared this summary for use by out-of-state buyers. The material is divided into three main areas:
I. The Purchase Agreement
II. The Mortgage
III. The Closing
I. The Purchase Agreement (Contract)
A. PREPARATION: Preparation of the Purchase Agreement by a Realtor is customary, rarely is an attorney retained. The interim form of offer, sometimes used in other states, is not used in Louisiana. The Purchase Agreement, when fully executed, creates a binding contract.
B. THE DEPOSIT: The deposit is customarily 1% of the purchase price given in the form of a check, made payable to the listing broker. In most cases it is held by the listing broker until consummation of the sale. Deposits are returned if contingencies of the contract cannot be met, following execution of a cancellation of the agreement.
1. FINANCE CONTINGENCIES: Finance contingencies are widely used. The purchaser obligates himself to make good faith loan application, and if a financing commitment cannot be obtained within the specified time, the contract is declared void and the deposit is returned.
2. INSPECTIONS: The Purchase Agreement may be contingent upon the satisfactory completion of roofing, termite, structural, and component inspections. These inspections are normally paid for by the purchaser. A termite certificate will be provided by the seller at closing.
3. SALE OF OTHER PROPERTY: Occasionally an offer to purchase may be contingent upon the sale of other property. This type of contingency is usually accepted with the understanding that the subject property is to remain on the market, and that if another acceptable offer is made on the property, the first purchasers will have 24 – 48 hours in which to remove the contingency.
D. PERSONAL PROPERTY: It is customary to reference in the Purchase Agreement any personal property that the purchaser expects to be included in the sale, i.e., window treatments, rods, storage sheds, swings, basketball goals, etc.
E. TAXES AND RENTALS: Taxes and rentals are referenced in the Purchase Agreement, they are prorated to the date of the Act of Sale.
F. TITLE: The title must be clear. Any existing liens and encumbrances are to be removed by seller prior to closing.
G. TIME TO CLOSING: Thirty to sixty days is the average time period allowed for closing, depending upon the lender chosen.
H. OCCUPANCY: Occupancy usually coincides with closing. Occupancy agreements are entered into when occupancy must take place for any period prior to or after closing.
A. SOURCES: The two main sources of mortgages are Banks and Mortgage companies.
B. USURY LAW: The usury law applies only to institutional lenders and sets a ceiling of 17%
C. DISCOUNT POINTS: Discount points are customarily paid by the Purchaser in obtaining loans, but may be negotiated. Each discount point represents 1% of the loan amount.
D. DUE-ON-SALE-CLAUSES: Mortgages written by lenders in this area generally contain a “Pact De Non Alienando” clause which in other states is called a “Due on Sale” clause. For this reason there are only limited sales in the area based on assumptions and wrap-around financing.
E. KEY MORTGAGE INSTRUMENTS: The key mortgage instruments are promissory notes, which provide evidence of the debt, and the mortgage, which acts as security for the note.
III. The Closing
A. LAWYERS: Closings can only be handled by a notary public who is often an attorney as well. Buyers are allowed to choose the closing attorney unless lender reserves the right to name the closing attorney of their choice or unless the Seller is paying closing costs at which time he may select the closing attorney. Oftentimes closings are opened with Title Companies that specialize in real estate closings.
B. POWERS OF ATTORNEY: Powers of attorney are used in the event that one or more sellers or purchasers cannot be present at the closing. Many local attorneys have their own required form and may reject a power of attorney written by another lawyer. It is always advisable to have the closing notary originate or approve the powers of attorney will in advance of the closing.
1. PROPERTY INSURANCE: Lenders require a fire and extended coverage policy for either the amount of the mortgage or the appraised value of the structure, whichever is greater.
2. TITLE INSURANCE: Title insurance in favor of the lender is required in most cases. For a nominal additional cost, insurance in favor of the purchaser can be obtained.
3. PRIVATE MORTGAGE INSURANCE OR STRETCH PREMIUM: Based on a fixed rate mortgage or ARM, private mortgage insurance or Stretch premium, is required whenever the loan-to-value ratio exceeds 80%.
4. RESPONSIBILITIES OF THE CLOSING NOTARY
a. Preparing the deed
b. Handling mortgage insurance (if applicable)
c. Preparing and computing the closing statement, including all adjustments
d. Satisfying any existing liens or encumbrances
e. Paying Broker’s Commission from proceeds
f. Recording all pertinent documents
D. TITLE TO PROPERTY: Title in Louisiana is evidenced by “conveyance.” Purchasers will normally receive a copy of the title within three weeks of the sale; at that time the sale will have been recorded and assigned Mortgage and Conveyance book numbers.
E. HOMESTEAD EXEMPTIONS: A homestead exemption on owner-occupied property up to $75,000 is one of the reasons for the low property taxes that exist throughout Louisiana. Purchasers should inquire about securing a homestead exemption immediately upon receiving a copy of the title.
F. CLOSING COSTS: The most significant difference in the payment of closing costs in the Baton Rouge area, as compared to other states, is that the purchaser pays the cost of title research and/or title insurance.
G. CERTIFICATES OF OCCUPANCY: The type of certificates, required in some states, is required only on new construction in the Baton Rouge market area.