A Legal Checklist to Selling Your Home


3If you are considering putting your house on the market, it is important to think about more than just the curb appeal of your property. Unfortunately, there are several legal pitfalls that can complicate a home sale for sellers who don’t do their homework. Whether you are selling because you are divorcing, downgrading, upgrading, or struggling financially, this guide will help you navigate the common legal issues that can arise after you hang the “For Sale” sign.

Take care of your liens, debts, or encumbrances first

Other than mortgages that will be paid from the sale proceeds at closing, it is in your best interest to resolve any outstanding liens, debts or encumbrances on your home before you close your real estate deal. The title insurance company will alert your prospective buyer to outstanding liens against the property. Even if you are hoping to pay those debts from the purchase price, having liens against your property could be a reason for an otherwise enthusiastic buyer to walk away from the deal.

In addition to your mortgage (and possibly a home equity line of credit), the most common debts that could result in a lien against your property include:

  • Unpaid federal, state or local taxes
  • Missed child support or alimony payments
  • Past due homeowners association dues
  • Civil court judgments
  • Second or third mortgages that you gave to creditors

It does not matter whether the amount of the lien debt is $2,000 or $200,000, all lienholders including your mortgage lender will need to be paid from the proceeds of the sale of your home. If the sale price of your home does not satisfy all of the liens against your property, you will need to bring cash to the table in order to sell the property. You are much more likely to close the deal, however, if you pay judgments and similar liens before you accept an offer to purchase your property.

Make sure all property owners agree with the sale

The way the ownership of your home is structured could impact your ability to sell it. For example, if you inherited the home from your parents and your siblings are named as joint owners, your ability to sell the property is limited.

You will need to obtain consent to sell the property from all the owners and come to an agreement about how the net proceeds from the sale will be dividing among everyone. This same principle applies to married couples going through a divorce. If both spouses own the home jointly, they will both need to sign a deed to transfer title to the home buyer. Attempting to sell a property without the other owners knowing about it could result in fraud charges. It is best to make everyone involved aware of the sale in advance so all the sellers can be on the same page.

Create a home sale agreement where necessary

The Illinois Civil Union Act gives couples who have formalized a civil union the same legal rights as spouses, including the right to a property division when their relationship ends. For couples who want to own property together without entering into a formal civil union, purchasing property together can be complicated. When one person titles the property in his or her own name, the person not named in the deed will probably have no property rights — even if that person lived in the home for years and contributed to the mortgage and home maintenance expenses the entire time. For example, if you and your domestic partner purchase a home that will be titled only in your partner’s name (perhaps because your partner made the down payment),  you may feel entitled to a portion of the sale price if you break up after contributing half of the monthly mortgage payments. However, in the eyes of the law, only the person named on the deed has legal claim to any money earned from the sale.

One way unnamed domestic partners can protect themselves in this situation is to draft a home sale agreement. An experienced real estate lawyer can draft this document to include all the terms you and your partner agree to such as:

  • Allocation of sale proceeds (this could be 50/50, 40/60, 25/75 or some other split you and your partner decide is fair)
  • Responsibility of each owner for liens, encumbrances or other outstanding debts
  • Any other terms of the agreement

While it may be awkward to have the discussion about your ownership expectations with your partner, it is the smartest way to protect the investment you have made in the property. No one wants to spend years making mortgage payments and putting in sweat equity to improve and maintain a home without benefit.

Having a home sale agreement in place before you contact a real estate agent to sell the home ensures that both domestic partners are on the same page about what happens after the deal closes.

Collect all your important home documents

The final step before you put your home on the market is to track down all the documents pertaining to the value of the property. These documents include things like:

  • Appraisals
  • Deed
  • Records of liens, judgements, or encumbrances
  • Surveys
  • Receipts or other paperwork for major home improvements, repairs or damage
  • Applicable agreements with co-owners
  • Comps for area home sales
  • A copy of the Covenants, Conditions, and Restrictions for your homeowners’ association.

Your real estate lawyer may need these documents to protect your interests in the sale. It is better to have them handy rather than engaging in a frantic search when the need for the documents is more pressing.