Both buyers and sellers of real estate have ongoing rights and obligations after the purchase or sale of property. Whatever the agreement is between the buyer and seller for post-closing obligations, it should be put in writing and signed by all parties involved. This will help to avoid any later misunderstandings or disputes over what each party's obligations were.

It is possible that issues may arise with any of the following after closing:

  • Title Defects
  • Warranties
  • Seller Disclosures
  • Escrow Impound Accounts

Title Defects

Title insurance is a contract between the insured (home buyer or the buyer's lender) and the title company. The insured agrees to pay a premium for the title policy. If the title to the property or mortgage insured is questioned after closing, the title company agrees to defend the title in court or to make good any loss suffered because of the title being defective.

After closing, a buyer may discover that title to the property is defective, which means that a claimed prior holder of title did not have title or there is a faulty description of the property or other "cloud" on the title. This can happen even though the title company carefully searched the records and determined that the title to the real estate was good. There can be hidden defects that affect title to real estate that are not discovered until a later date, such as forgeries, mistakes in the description, clerical mistakes or defective acknowledgements.

Warranties

A home warranty is a service contract that covers the repair or replacement of many of the most frequently occurring breakdowns of home system components and appliances. Sometimes a home owner offers home warranty coverage and sometimes a buyer pays for it. The policies are prepaid for a year in advance, at which time they expire or can be renewed.

If something goes wrong during the warranty period, the process is:

  • Buyer calls the home warranty company
  • Home warranty company will call a provider
  • The service provider will call the home owner to set up an appointment
  • The service provider will fix the problem, which may mean repairing the item or replacing it if it cannot be repaired
  • The home owner pays a small fee to the service provider

Sometime claims are denied for the following reasons:

  • Improper maintenance
  • Code violations
  • Unusual wear and tear
  • Improper installation

Seller Disclosures

Most sellers are required to disclose certain types of information about the homes they are selling. The seller gives the buyer a disclosure report that details all physical problems and defects that the seller is aware of. However, many seller disclosure laws require the seller to have actual knowledge of a problem prior to having an obligation to disclose it.

Representations and warranties sought by purchasers and required by lenders often include clauses providing that no hazardous substances have been stored, used or disposed of on the property and that the property is in compliance with all environmental laws. Purchasers and lenders will often seek to supplement such representations and warranties with indemnity clauses and ''hold harmless'' agreements. These clauses generally provide that the seller will reimburse the purchaser or lender for environmental liabilities and litigation fees.

A seller's failure to disclose known defects could result in civil and criminal action, and in some cases even cancellation of the sale. A home buyer may file a lawsuit against a seller if the buyer discovers a defect within the home after the sale closes and feels that the seller was not honest about the condition of the home when it was sold.

An innocent purchaser who suffers damages resulting from clean-up costs may recover from a seller who, though not aware of subsurface contamination, warranted that the site was in full compliance with environmental laws.

Escrow Impound Accounts

An escrow account is an account set up for the buyer to prepay certain recurring costs associated with a mortgage and home ownership, such as private mortgage insurance (PMI), property insurance and property taxes. Instead of paying large, lump sums to cover the costs of homeowner's insurance and property taxes, these payments are divided into installments which are paid to the lender monthly along with the loan principal and interest.

The amount in the escrow account varies during the year due to tax assessments and insurance premium adjustments. The lender typically will cover any shortfalls until it can adjust the monthly payment to make up for tax hikes and premium increases. The monthly mortgage payment will fluctuate from year to year, even on long-term, fixed-rate loans.

The loan servicer will provide a year-end interest statement and account analysis so that the buyer can monitor the account. The homeowner will also need the information when filing taxes to ensure that the appropriate deductions are taken for the interest and real estate taxes paid.

Homeowner insurance coverage needs will change over time so a homeowner should regularly review their coverage. Also, PMI may be cancelled when the mortgage is paid down to the point that it equals 80 percent of the original price or appraised value of the home at the time the loan was obtained, whichever is less.