Arizona is not an attorney state and people purchasing property here who hail from the east coast are often baffled because the Realtor® does everything, there is no attorney involved. If the seller and/or buyer want legal representation, he/she can hire an attorney, but under Arizona statutes, the real estate agent has the power granted to attorneys in other states.

Arizona is often called a “title company” state. It is the title company which investigates the chain of title and provides “title insurance”. If the deed is faulty, it is the title company which must make restitution. In attorney states, it is the attorney who researches the chain of title and does the “closing” which would be the function of escrow companies here in Arizona.
We have talked about preparing the offer for the buyer, how it is going to be financed, when we are going to close escrow, and the appraisal contingency. When the seller’s agent receives an executable contract, that agent “opens escrow”. Evidence of earnest money is taken to the escrow company and “escrow is opened”.  A receipt for the earnest money is given to the agent who then should give a copy to the buyer and seller.  The escrow company begins the process of checking the documentation and orders title documents from the title company.
In Arizona, escrow company and title company are often used interchangeably. However, they can be different companies. Many of the large real estate companies have relationships with title companies and escrow companies; the information on the contract will read abc title company/xyz agency.  Sometimes this is more expensive for the buyer and seller.
The buyer must determine how to take title to the property.  There are several methods in Arizona in which to take title with legal and taxable ramifications to each method. Legal and/or tax information cannot be dispensed by the agent or the title company but the agent or title company can give you an informational sheet on methods.
The commitment for title insurance will be delivered to the agent and to the buyer and these documents should be read by both the buyer and the buyer’s agent to insure there is no “clouded title”. Problems with title must be resolved prior to close of escrow. A common problem is a living person who is on title, and the co title holder is deceased.  The estate of the deceased must be reconciled prior to transfer of title and any and all taxes paid.
Before listing a property, a good agent will make sure there are no title problems and may ask for a certified death certificate as well as trust documents.   When an offer is being negotiated, the horrible title problems will not rear their ugly heads. Sometimes it takes months to clear a title since people must be tracked down and documents must be notarized.
Any exceptions to title insurance must be listed. Title insurance generally covers anything which can be determined from public records. Items not recorded in public records are usually not covered. Deed restrictions, easements, covenants, codes and restrictions should all be public records.

The escrow company must provide the Homeowner’s Association (HOA) information about the buyer and must provide the HOA a closing protection letter indemnifying the buyer and seller from any losses or fraudulent acts by the escrow company. The purchase contract is the instructions to the title and escrow companies.

The buyer has five days from receipt of these documents to review them and disapprove of any item.  A buyer who has three 150 pound dogs may want to withdraw from the contract since the HOA regulations permit only one dog weighing no more than 50 pounds.  More commonly, a person has an RV or a large truck and will not be permitted to park the vehicle on the property. If in an active adult community, often young children are prohibited for more than an overnight. Grandparents who find themselves caring for grandchildren may have to move from an active adult community or give up caring for their grandchildren.  CC and R’s impact the way you can live in your property.  Pay attention to them!

The date of close of escrow is the date of proration for taxes, insurances, HOA dues, or other fees. The buyer should make sure all utilities are turned on at the close of escrow so a reconnect fee will not be charged.
If there is a dispute between the buyer and seller regarding any earnest money deposited with the escrow company, the final arbiter is the escrow company. This may arise because one or the other party fails to fulfill the terms of the contract. Each agent may petition the escrow officer on behalf of his/her client, but there is a hold harmless clause indemnifying the escrow company.
The contract provides for assessment liens to be split between buyer and seller, paid in full by either the buyer or seller, but any lien filed after the close of escrow is the responsibility of the buyer.
FIRPTA, the Foreign Investors in Real Property Act, must be complied with at the close of escrow and it is the responsibility of the BUYER to withhold a tax equal to 10% of the purchase price if the seller is a Foreign Person or non resident alien who does not have a tax number.

Realtors® who sell to foreign persons have an ethical responsibility to explain FIRPA and the need to obtain a tax number to these buyers when selling a property in the United States. Trying to comply with the federal mandate when selling a home in order to close escrow is difficult at best.

The buyer should have been pre-approved by a lender in order to purchase a property.  There is a difference between being pre-qualified and being pre-approved.    To be pre-qualified means that according to what you have told the lender, he believes you can purchase the property for whatever sum.  Being pre-approved means the lender has checked the assets and liabilities and feels that the buyer can afford to own this property…the buyer is “good to go”.  The buyer wants to be pre approved.

But a pre-qualification form should accompany every offer.   However all offers using the AAR Contract are contingent upon loan approval, if the buyer suddenly cannot qualify for any reason, he/she is out of the contract, and if the property does not appraise, the loan cannot usually  be granted and the buyer is out of the contract. Earnest money will be returned to the buyer.

If the lender has “Prior to Document” conditions on the loan, then the specified conditions must be met prior to documents being issued by the lender.  For example, a termite treatment may be required by a lender for a VA loan.  Documents cannot be issued and therefore the loan documents will not be issued, nor the loan funded without this condition being met.  (A loan cannot fund without the signatures of the buyers.)

If the buyer had been offered an interest rate but failed to lock the rate because he/she thought the rate would go down, this is not sufficient reason for the contract to be cancelled.  Failure to have the necessary funds to close escrow is likewise, not a reason for the contract to be cancelled.

The buyer must provide the lender the name  of the buyer, social security number, address of the property to be purchased, buyer’s income , estimated value of the property, and the amount of the loan requested.  The buyer grants the lender permission to obtain a tri-merged credit report.

The Loan Status Update must be delivered to the seller with appropriate information describing the current status of the loan.  The update must be provided by the lender when requested by the seller.

The buyer will sign all loan documents no later than three days prior to the Close of Escrow date.

The financing portion of the contract indicates the type of loan, and if there is a change, all parties and the escrow company must be notified.  The buyer pays all loan costs unless otherwise indicated, and if concession from the seller to the buyer are a part of the contract, this must be spelled out.  If the loan is a VA loan, certain fees cannot be paid by the veteran and must be paid by the seller.   The appraisal fees which are to be paid, is designated either paid by the seller or by the buyer.

These provisions also act as instructions to the lender and the title company and permit the seller to know the details of the loan.  Both the buyer’s agent and the seller’s agent will monitor the loan process to make sure all time frames are being met.

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

The Arizona Residential Purchase Contract identifies both the buyer(s) and the seller(s) of the property and indicates the buyer’s desires to purchase the property identified in section 1 b. This identifies the address of the property, the tax identification number, and the legal description. Three methods insures all identifications point to the same property.

The next section details the offering price of the property, the amount of earnest money, and the method of payment for the property. Earnest money shows that the buyer is serious about purchasing the property and certain conditions can cause the buyer to lose his earnest money.

Additional funds at the close of escrow are indicated, and the amount of loan and type of loan is spelled out. For instance, a property is $200,000 with 20% conventional loan and $2,000 earnest money.

The financing portion of the contract is further enumerated in Section 2. We know the offer is for $200,000 with $2,000 earnest money, $38,000 additional funds at close of escrow, and a conventional first loan of $160,000.

Close of Escrow is defined as recordation, not when the signing takes place. Often close of escrow is close to the last day of the month because the buyer can bring less funds to the closing table.

Interest is paid on a per diem basis and if our interest is 3.875%, our interest would be about $6200 or about $16.99 a day. If we close on the 15th of the month, we have 15 days of interest or $254.85 to bring to the closing table, but if we close the 30th of the month, we only have $16.99 in interest.

Possession is at the close of escrow, or when the property transfer is recorded with the Pima County Recorder’s office.

Any addenda which is made a part of this contract; an “AS IS” addendum, a HOA (homeowners association) addendum, short sale addendum, lead based paint disclosure, water well or septic system addendum, a loan assumption, or seller financing, or an additional clause addendum are listed.

All items attached to the property stay with the property, including landscaping.  And if the buyer wants the washer, dryer, refrigerator, or other appliances with the exception of the stove, they must be listed. Pool and spa equipment, fireplace equipment, water system and security systems transfer with the property.  Furniture and personal items should be conveyed with a bill of sale.

The cover page of the Residential Resale Real Estate Purchase Contract has boldfaced capital letters ending with an exclamation point, ATTENTION BUYER!

And underneath the exclamatory phrase is “You are entering into a legally binding agreement” in large letters.

The Arizona Association of Realtors® is nearly screaming at you to pay attention to what you are about to sign.

There are eight caveats:  Read the entire contract before you sign it.  If you don’t understand something, ask!

It will tell you to review the Residential Seller’s Property Disclosure Statement, otherwise known as the SPDS.    This will be given to you after mutual acceptance of the contract, if not before.  The seller discloses all that he knows about the house to the best of his ability.  With your agent, you should review all information to ascertain if there is additional information you may want to investigate during the ten day inspection period.  On the basis of information in the SPDS, you may decide not to proceed with the contract.  This is an important document.

The third item has to do with Inspections.  The buyer can inspect for anything that is important to the buyer.  This will include the Covenants, Codes and Restrictions (item 7) and other governing documents.  If you have three 150 pound dogs, it is important to read the CC and R’s to make sure they are allowed in the community.  But you may inspect for mold, have a roof inspection, a pest inspection, a pool inspection, and an HVAC inspection or anything else the buyer deems important.

During the inspection period, confirm that you can obtain insurance on the property.  And you should have verified you can obtain a home loan.  Any information requested by the lender should be provided immediately.

Your agent will review the title commitment with you and if there are problems with the title, they will be have to be resolved prior to close of escrow.

And finally, the buyer should conduct a final walk through to make sure the property is in the same condition as when originally seen and if repairs were requested, they were done in a workman like manner.

The cover page is explicit:  “Verify anything important to you.”

The Arizona Department of Real Estate has made every effort to let consumers know their rights and responsibilities when purchasing a property. The buyer is entering into a legally binding agreement and can be held to that agreement in a court of law.

The buyer and seller must know what they are signing and should be working with an agent who takes the time to explain the entire contract and the ramifications of each section of the contract.

An agent who slides paperwork over to the buyer and/or seller and says “sign here” without an explanation may be binding those people to a legal contract which they do not understand. But then ignorance of the law is no excuse.

If you have a buyer’s agent, or a seller’s agent, their fiduciary responsibility is to you. It is far better for you to belabor the point until you understand the contract than to sign something which may cost you dearly in the end.

This series of blogs will explain the purchase contract in detail. I will break it down section by section. In the State of Arizona, which is not an attorney state, real estate agents are given the powers vested to attorneys in other states. Be sure you know your agent and if you desire to use an attorney, a good real estate agent should permit that.