Buying a Home in Arizona: Navigating the Real Estate Purchase Contract, Loan Process, and Seller’s Disclosure Obligations
Buying a home is one of the most important purchases a person can make, so I’d like to provide a primer here. First, there is the matter of locating the right property. Then you have to calculate your bid, pay earnest money, and hope that the amount you have offered aligns with the seller’s expectations. Once the seller accepts your offer, you are in a legally-binding contract, and the clock will start to tick in several ways. The good news is that by understanding your Arizona real estate purchase contract, the loan process, and the seller’s disclosure obligations, you can be better prepared for the home-buying process.
The Arizona Residential Resale Real Estate Purchase Contract
The Arizona Residential Resale Real Estate Purchase Contract is a detailed 11-page legal document that outlines the duties, requirements, and expectations for both buyers and sellers in a real estate transaction. This contract has evolved to offer clarity and protection, ensuring that both parties understand their obligations.
Key Elements of the Contract
When making an offer on a house, several critical elements will be part of the negotiating process:
- Purchase Price: The total amount you are offering for the property.
- Earnest Money Deposit: The initial deposit you provide as a sign of good faith, which may be refundable or non-refundable depending on the terms.
- Down Payment: The amount you are putting down towards the purchase price.
- Closing and Possession Dates: When you will officially close the deal and take possession of the property.
- Addenda Incorporated: If the property is part of a Homeowners Association (HOA), the contract must include an HOA addendum.
- Inclusion of Fixtures and Personal Property: What items, such as appliances or fixtures, will remain with the property.
- Financing Type: The type of loan you are obtaining, such as conventional, FHA, or VA.
- Seller Contributions: The amount you are asking the seller to contribute towards your closing costs.
- Appraisal Costs: Determining who will pay for the property appraisal.
- Title and Escrow Company: The parties agree on which company will handle the title and escrow process.
- Inspection Period: The length of time you have to inspect the property and raise any issues.
- Home Warranty: Whether a home warranty will be purchased, and by whom.
- Legally Binding Agreement: Understanding that once the contract is signed by both parties, it becomes a legally binding agreement.
Legal Obligations Under the Contract
It is crucial to understand that once the purchase contract is signed by both the buyer and the seller, it becomes a legally binding agreement. If you breach the contract, you could lose your earnest money deposit. Furthermore, the seller could potentially sue you for any losses they incur due to your breach. Therefore, it is imperative to communicate any changes in your circumstances that might prevent you from honoring the contract.
There are also contingencies included in the purchase contract that may allow you to back out under certain conditions. These contingencies typically relate to financing, inspections, and appraisals. Understanding and adhering to these terms is vital to protecting your financial interests.
Good Faith in Contractual Obligations
As a buyer, you are expected to act in good faith, meaning that you must deal honestly and fairly with the seller. If you make an offer, you should be prepared to follow through on it. If there is any possibility that you may not be able to close, you need to inform the seller upfront. A real estate contract is essentially a set of signed promises, and you should be prepared to deliver on those promises.
Time is of the Essence
In real estate transactions, Time is of the Essence is a legal term meaning that deadlines are critical. Both you and the seller must meet these deadlines to ensure that the transaction progresses smoothly. Many other professionals, including lenders, inspectors, and escrow officers, depend on timely actions from both parties. Delays in providing documentation or taking action can cause significant setbacks, potentially leading to a delayed closing or even the loss of the transaction.
The Loan Process in Arizona
Loan Application and Required Disclosures
As soon as you have a fully accepted purchase contract, you need to contact your loan officer to proceed with the mortgage application process. Your real estate agent will likely advise you to move quickly since you are now contractually bound to close by the agreed-upon date.
The loan application, commonly known as the 1003 (Ten-O-Three) or Fannie Mae Form 1003, is a comprehensive document that includes:
- Type of Mortgage and Term of Loan: Details like the loan amount, interest rate, and term.
- Property Information and Purpose of Loan: Information about the property and the loan’s purpose.
- Borrower Information: Personal details including employment history and financial background.
- Assets and Liabilities: Disclosure of your assets and liabilities to assess your ability to repay the loan.
- Details of Transaction: Financial aspects of the mortgage loan, such as the purchase price and closing costs.
- Declarations: Information about any legal or financial issues that might affect your loan.
- Acknowledgement and Agreement: Certification of the accuracy of your information.
- Government Monitoring: Data collection for compliance with federal laws like the Equal Credit Opportunity Act (ECOA).
Important Federal and State Mortgage Disclosure Laws
During the loan process, you will receive various disclosure forms required by federal and Arizona state laws, such as:
- Truth In Lending Act (TILA): Requires lenders to clearly disclose loan terms and costs.
- Real Estate Settlement Procedures Act (RESPA): Mandates disclosures of settlement costs and prohibits kickbacks.
- TILA-RESPA Integrated Disclosure Rule (TRID): Simplifies and combines TILA and RESPA disclosures.
- Equal Credit Opportunity Act (ECOA): Prohibits lending discrimination.
- Fair Housing Act: Protects against housing discrimination.
- Home Mortgage Disclosure Act (HMDA): Ensures lenders report mortgage data to monitor discriminatory practices.
- Fair Credit Reporting Act (FCRA): Protects the accuracy and privacy of credit information.
- Gramm-Leach-Bliley Act (GLB): Protects consumer financial information.
- Arizona-Specific Mortgage Disclosure Laws: Include requirements for advance fees and prohibitions on signing incomplete documents.
Locking Your Interest Rate
A rate lock ensures that your interest rate will not change before closing, as long as you meet all conditions. Typically, rate locks are for 15, 30, or 60 days. If you need to extend the rate lock, it might incur additional costs.
Loan Submission, Processing, and Underwriting
Once your loan application and disclosures are completed, your file is submitted to the operations department for processing, underwriting, and closing. The underwriter will review your file and either approve or decline your application based on the risk assessment.
Loan Closing
Upon final approval, you will receive a Closing Disclosure at least three days before closing. This document outlines the final terms and costs of your mortgage. After signing, the lender will prepare the final loan documents for closing, where all necessary paperwork is signed, recorded, and funds are disbursed.
Selling an Arizona Home: What Are My Disclosure Obligations?
Before selling residential property in Arizona, a seller is legally required to disclose certain facts about the property’s physical condition. This obligation is grounded in both state statutes and Arizona court decisions, such as Hill v. Jones, 151 Ariz. 81, 725 P.2d 1115 (1986). This case established that a seller must disclose material facts that could affect the property’s value or desirability, which the buyer cannot reasonably discover on their own.
What Specific Information an Arizona Seller Needs to Disclose
A seller must disclose any material information they actually know about that could influence the buyer’s decision. “Material” means any issue that a reasonable person would consider important in deciding whether to proceed with the purchase. For example, termite damage is a material fact that must be disclosed.
Specific disclosures required by Arizona law include:
- Swimming Pool Barrier Disclosure: Sellers must disclose whether a property complies with local pool barrier regulations (A.R.S. § 36-1681(E)).
- Condo Disclosure Information: Information about condo associations and shared facilities (A.R.S. §§ 33-1806, 33-1260).
- Notice of Soil Remediation: Required if the property is in an area with known soil contamination issues (A.R.S. §§ 33-434.01, 49-701.02).
- Disclosure Affidavit for Land in Unincorporated Areas: If the property is in an unincorporated area, sellers must disclose specific details about the land (A.R.S. § 33-422).
- Military Airport Disclosure: Sellers must inform buyers if the property is located near a military airport (A.R.S. § 28-8484).
Additionally, sellers must provide a Comprehensive Loss Underwriting Exchange (CLUE) report detailing any insurance claims made on the property in the past five years (or for the period they have owned it, if less).
What Information an Arizona Seller Does Not Need to Disclose
Sellers are not required to disclose certain information, such as:
- Whether a registered sex offender lives in the area (buyers can research this independently using the Arizona Department of Safety’s database).
- Whether the property was previously owned by someone with AIDS, HIV, or another non-transmittable disease.
- Whether a death (natural or otherwise) occurred on the property.
However, if the buyer asks about these matters, the seller must not lie or provide misleading information. Instead, they should either answer truthfully or explain that they are not required to disclose this information by law (A.R.S. § 32-2156).
Using Arizona’s Standard Form to Disclose the Required Information
Arizona does not mandate a specific disclosure form by law. However, the Residential Seller’s Property Disclosure Statement (SPDS) is the most commonly used form, drafted by the Arizona Association of Realtors. This form acts as a checklist where sellers can disclose known issues with the property. The SPDS covers:
- Property and Ownership: Basic legal and ownership details.
- Building and Safety Information: Structural integrity and safety issues, including pest infestations and unpermitted construction.
- Utilities: Availability and condition of utilities.
- Environmental Information: Soil issues, drainage, noise, and other environmental factors.
- Sewer/Wastewater Treatment: Details about the sewage system.
- Other Conditions and Factors: Space for any additional disclosures the seller believes are material.
The standard Arizona Association of Realtors contract requires sellers to deliver this disclosure statement within three days of accepting the buyer’s offer, though it is good practice to provide it earlier.
Arizona Real Estate Agents Must Also Disclose Latent Material Home Defects
Real estate agents in Arizona have their own disclosure obligations under Arizona Commissioner’s Rule R4-28-1101(B). Agents must disclose in writing any material defects they are aware of that could affect the property’s value. If the seller informs the agent of a defect or the agent discovers it independently, the agent is required to disclose it to the buyer.
Updating the Arizona Seller’s Disclosure Statement
If new information arises after you’ve provided the disclosure statement to the buyer, you have a legal duty to update the buyer. For instance, if the roof starts leaking before closing, you must inform the buyer, even though you are not necessarily required to fix the issue.
Federal Disclosure Requirements Regarding Lead in the Home
For homes built before 1978, federal law requires sellers to disclose any known information about lead-based paint and provide a pamphlet on lead hazards.
Legal Risks for Home Sellers Who Violate Arizona’s Property Disclosure Requirements
Failing to disclose required information can expose sellers to lawsuits for failure to disclose, fraud, or misrepresentation. If the buyer succeeds in such a lawsuit, they may be awarded substantial damages or, in some cases, have the sale rescinded, which means the transaction is voided as if it never happened. Therefore, it is always safer to disclose any and all material information about the property.
Property Buyer’s Checklist (Home or Land)
When purchasing property in Arizona, whether it’s a new home, a previously owned home, or raw undeveloped land, the following steps are crucial:
New Homes in a Subdivision
- Public Disclosure Report: Must be provided by law before signing a purchase contract (A.R.S. § 32-2183). This report includes flooding disclosures, utility providers, community facilities, and local services. Ensure you receive and sign the report acknowledgment.
- Purchase Contract: Carefully read and understand where earnest money is placed, review zoning maps for nearby land use, and verify school district availability.
- Deed Restrictions (CC&Rs): Review any restrictions, especially in HOA-governed subdivisions.
Previously Owned Homes
- Broker Representation: Understand that the seller’s broker represents the seller. Consider hiring a buyer’s broker.
- Seller’s Disclosure Report: Review carefully and be aware of any deadlines for inspections.
- Inspections: Conduct professional inspections and ensure all appliances and systems function properly.
Raw Undeveloped Land
- Disclosure Report: Request the Arizona Department of Real Estate Disclosure Report for subdivisions with six or more lots (A.R.S. § 32-2181). Pay attention to water resources and legal access.
- Water Resources: Ensure an adequate water supply is available.
- Legal Access: Confirm permanent legal access to the property.
- Rescission Rights: You have seven days to rescind the purchase after signing the contract, and six months to inspect the land.
Conclusion
Buying or selling a home in Arizona involves navigating complex legal documents and processes. Understanding the Arizona Residential Resale Real Estate Purchase Contract, fulfilling seller disclosure obligations, and completing the loan process while complying with both federal and state laws is critical to ensuring a smooth transaction. By following the detailed checklist and legal guidelines, you can protect your interests and make well-informed decisions throughout the real estate transaction process.
If you have specific questions about disclosure requirements or find yourself in a situation where you need legal advice, consulting with an experienced real estate attorney in Arizona is highly recommended. The laws and regulations governing real estate transactions can be complex, and professional guidance can help you navigate them effectively.
