by Jeana Morrissey, Arizona real estate attorney
The following is a list of the documents that are used in a typical sale of Arizona residential real estate, including Arizona for sale by owner transactions. A particular sale may not use every one of the following documents, but most of the documents are used in almost all Arizona residential sales. The first list below is the most commonly used residential real estate sale documents. The second list below consists of documents that are also commonly found in Arizona residential real estate transactions and prepared by or obtained from third parties.
Common Arizona Residential Purchase / Sale Documents:
- Purchase Agreement. Arizona law provides that a contract to sell Arizona land is not enforceable unless it is in writing. This is the document that contains the terms and conditions applicable to the sale. It is the most important legal document in any sale transaction because it states the rights and obligations of each party.
- Escrow Instructions. Although not required, most Arizona sales of real property involve an escrow company that acts as the escrow agent. Escrow instructions may be included in the Purchase Agreement or may be a separate standard preprinted escrow company provided document. Escrow instructions may be modified, including an escrow company’s standard preprinted instructions. For more information about escrows, see What Happens In Escrow.
- Deed. This is the document that when signed, acknowledged before a notary public and given to the buyer will transfer title to the property to the buyer. Commonly used types of deeds in Arizona are: (i) Warranty Deed, (ii) Special Warranty Deed, and (iii) Quit Claim Deed. If you are the buyer of Arizona land, you should negotiate for a Warranty Deed if possible, but accept a Special Warranty Deed and never accept a Quit Claim Deed.
- Affidavit of Legal Value. Arizona Revised Statutes Section 11-1133 requires that all deeds to be recorded in Arizona must be accompanied by an Affidavit of Legal Value unless an applicable exemption (see ARS § 11-1134) applies to the transaction. This document states the purchase price paid for the property and is used by County Assessors to value the property for real property tax purposes. The escrow agent usually prepares this document for the closing.
- Seller’s Property Disclosure Statement. Arizona law requires the seller of real property to disclose all known material facts concerning the property to the buyer. No specific form is required, but Arizona realtors use the SPDS prepared by the Arizona Association of Realtors. It is a fill-in-the-blanks type of form that the seller should complete and then deliver to the buyer. The seller should: (i) obtain the buyer’s signature on the SPDS with the date of delivery of the SPDS, and (ii) keep a copy of the signed document for in seller’s records.
- Lead Based Paint Disclosure. A federal law known as the “Residential Lead-Based Paint Hazard Reduction Act of 1992” requires that before ratification of a purchase agreement for the sale of a residence built before 1978, the seller must: (i) give the Buyer an EPA-approved information pamphlet on identifying and controlling lead-based paint hazards called “Protect Your Family From Lead In Your Home,” (ii) disclose any known information concerning lead-based paint or lead-based paint hazards, (iii) disclose information such as the location of the lead-based paint and/or lead-based paint hazards, and the condition of the painted surfaces, (iv) provide any records and reports on lead-based paint and/or lead-based paint hazards that are available to the seller, (v) include an attachment to the purchase agreement that includes a Lead Warning Statement and confirms that the Seller has complied with all notification requirements (the Seller, Buyer and all real estate agents must sign and date the attachment), (vi) Seller must give buyer a ten day period to conduct a paint inspection or risk assessment for lead-based paint or lead-based paint hazards. Parties may mutually agree, in writing, to lengthen or shorten the time period for inspection. Homebuyers may waive this inspection opportunity.
- Residential Pool Safety Notice. If the property has a swimming pool or spa, the Seller should give Buyer a copy of the Residential Pool Safety Notice and have the Buyer acknowledge receiving the document.
- For Your Protection: Get a Home Inspection. This is a brochure prepared by the U.S. Department of Housing & Urban Development. A Seller should give the Buyer a copy of this document, HUD-92564.CN, and have the Buyer acknowledge in writing that the Buyer received the document. If a sale transaction will involve FHA mortgage insurance on the property, the Seller and Buyer sign the Form HUD-92564-CN “For Your Protection: Get a Home Inspection” on or before the date the parties sign the sales contract or the buyer cannot get FHA mortgage insurance unless the parties re-sign the sales contract after the date they sign the HUD-92564-CN.
- Homeowners’ Association Disclosure Statement. If the property is subject to a homeowners’ association (“HOA”) the Seller has a duty to disclose to the Buyer all known material information about the HOA and how it affects the property. If the HOA has over 50 units, the HOA must send a copy of the applicable Conditions, Covenants & Restrictions to prospective Buyer within ten business days of the HOA receiving notice of the sale.
- Report of Inspection and Notice of Transfer of Ownership. If the property contains a septic tank or what the Arizona Department of Environmental Quality (“ADEQ”) refers to as an “on-site wastewater treatment facility” that was approved for use on or after January 1, 2001, by ADEQ or a delegated county agency, the system must be inspected at the time title passes to the Buyer. Because septic tank systems may fail after many years of service or after a change in water usage, often following occupancy by new owners, ADEQ adopted rules to provide for the statewide inspection of septic tank and alternative systems to help selling and buying property owners understand the physical and operational condition of the septic system serving the home or business. The buyer or transferee of Arizona real property with a reportable septic tank must file the Report of Inspection and Notice of Transfer of Ownership with the appropriate county agency within fifteen days after the date of an ownership change. The form must be submitted to the applicable county health or environ-mental agency delegated by ADEQ to administer the department’s on-site wastewater treatment facility program. The ADEQ has a checklist that it recommends for use by inspectors to assist in completing the official transfer inspection form.
- Foreign Investment in Real Property Act Affidavit. The Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”) established Internal Revenue Code Section 897. Section 897 applies to foreign persons that dispose of U.S. real property interests. IRC Section 1445 imposes an obligation on the Buyer to withhold a portion of the sales proceeds due a foreign Seller and pay the withheld amount to the Internal Revenue Service on behalf of the Seller. IRC Section 1461 makes the Buyer liable for the tax that must be deducted and withheld under IRC Section 1445. A Buyer can avoid withholding and the associated tax liability if the Seller certifies that the Seller is not a foreign person and if the Buyer has no reason to believe the Seller is a foreign person. Buyers should always include a provision in the sales contract that obligates the Seller to deliver a FIRPTA Affidavit and that authorizes the Buyer to withhold the proper amount at closing and pay it to the IRS if the Seller does not sign and deliver a FIRPTA Affidavit in which the Seller states that the Seller is not a foreign person as defined in Section 897.
- Commitment for an Owner’s Policy of Title Insurance. This is a report on the state of the title of the property to be sold prepared by a title insurance company after opening escrow. It states the current owner(s) of the property, the legal description of the property, the dollar amount of title insurance coverage, the requirements that must be satisfied before the title insurance company will issue the title insurance policy described in the commitment, and the liens, encumbrances and other title matters that will be excluded (not covered) by the title insurance policy. The exceptions to title insurance coverage are especially important because they are title matters that will affect the property after the sale.
- Title Insurance. On closing of the sale of the property and payment of the premium, the title insurance company will issue a policy of title insurance to the buyer that conforms to the commitment for title insurance of all the conditions thereto have been satisfied. For more information about title insurance see Title Insurance Articles.
If the seller loans the buyer all or part of the purchase price (commonly referred to as a “seller carryback” or carryback loan), the following additional documents should be used:
- Promissory Note. This very important document is the document that evidences the buyer’s debt for the unpaid portion of the purchase price. It states the amount owed, the interest rate, if any, the payment amounts and dates, maturity date and other terms and conditions applicable to the loan.
- Deed of Trust. If the Promissory Note is secured by a lien on the property being sold or other real property in Arizona, the Deed of Trust (rather than a mortgage) is used most often to create the lien. This document must be signed by the buyer, acknowledged before a notary public then recorded in the county where the encumbered real property is located.
- Lender’s Title Insurance. If we represent a Seller who makes a carryback loan secured by a lien on the home, we will also arrange for the Seller to obtain a policy of lender’s title insurance. If the Seller will obtain a Deed of Trust or a lien on the property being sold to secure payment of a debt owed to the Seller, the Seller (the lender) should acquire lender’s title insurance (as opposed to owner’s title insurance, which is what the Buyer should acquire) in the amount of the carryback loan to insure that the Deed of Trust is a validly recorded lien on the property subject only to liens and encumbrances acceptable to the Seller. Normally, the Buyer pays the cost of the lender’s title insurance. I recommend without exception that a Seller who takes a carryback lien on the property sold always get lender’s title insurance on the carryback lien.
Other Documents Frequently Used in Arizona Residential Real Estate Transactions in Arizona
- ALTA Survey. A survey of the property prepared by a licensed surveyor that complies with the minimum standard details promulgated by the American Land Title Association. This type of survey is required to obtain a policy of extended coverage title insurance, which provides greater coverage and protection than the standard owners and lenders title insurance policies.
- Loan Status Report. This is a document prepared by the Buyer’s lender that states that the lender has conditionally approved a loan to the Buyer subject to the satisfaction of certain conditions.
- Affidavit of Disclosure. Arizona Revised Statutes Section 33-422 provides that a seller of five or fewer parcels of land (improved and unimproved), other than subdivided land, in an unincorporated area of a county and any subsequent seller of any of the parcels shall furnish a written Affidavit of Disclosure to the buyer at least seven days before the transfer of the property, and the buyer shall acknowledge receipt of the affidavit. The buyer has the right to rescind the sales transaction for a period of five days after the Affidavit of Disclosure is furnished to the buyer. The seller must record the signed Affidavit of Disclosure when the deed is recorded.
You can see from the list of documents above that buying and selling an Arizona home is a very complicated undertaking. It is not something an inexperienced person should do unless he or she is willing to assume the risk that one or more required documents may be missing or defective and result in liability and economic loss. For example:
- If you are a buyer, how will you comply with the FIRPTA requirements or the septic tank inspection requirements?
- If you are a seller, how will you give the swimming pool notice, the HUD home inspection notice, the lead based paint notice, the HOA notice and the other notices you must give to satisfy Arizona law?
If you are involved in a for sale by owner transaction, it is especially important that you be represented by an Arizona real estate attorney. Sales of residential property in Arizona are extremely complex transactions. It does not make any sense to get involved in a home purchase or sale that involves hundreds of thousands of dollars and not hire a real estate attorney to protect your investment.
How to Hire Arizona Attorney Jeana Morrissey to Prepare Your Home Purchase or Sale Contract
For a list of the documents prepared and services performed by Arizona real estate attorney Jeana Morrissey when she is hired for a fixed fee (not by the hour) to prepare a FSBO contract and related documents for the purchase or sale of an Arizona residential property, see the article entitled “Arizona For Sale by Owner Contract Preparation Service.”
To hire Jeana Morrissey, Arizona real estate attorney, to prepare a FSBO contract and related documents for the purchase or sale, you must:
Complete and sign the Arizona Residential Purchase & Sale Contract Questionnaire and get it to us. The Questionnaire asks for the information we need to prepare your documents. You may not know the answers to some of questions, but answer the Questionnaire as best you can. Fax the completed Questionnaire to 602-297-6890 or email it to firstname.lastname@example.org.