Real Estate Investing Law: What You Need to Know

Aug 19, 20210 comments

Real estate investing can be a great way to achieve financial freedom and independence. With the market as hot as it is now, it can be a significant source of wealth whether you are looking for a profitable side hustle or to move into full-time investing. Either way, there are several ways you can set yourself and your business up for success and avoid legal hassles. Here are five things you as a real estate investor need to know about real estate law in Massachusetts.

Settlement agent must be licensed attorney

In real estate transactions, the settlement agent is the entity that is responsible for the transfer of title and the overall closing process. In many states, this can be a person or business, often a title company, licensed according to that state’s regulations. Massachusetts differs from other states in that any transaction involving a lender is considered the practice of law. Therefore, the settlement agent must be a licensed attorney. They will be the ones to handle the title search, closing procedure, and transfer of title.

Two-step process contract

In most states, when you decide to buy a property, your real estate agent would draft up an offer on a standard contract template. There would be a bit of negotiating, and then both parties would sign, creating a binding contract. In Massachusetts, however, this process has an additional step. After you’ve passed this first step of entering into a contract with a seller, you will typically schedule an inspection. After the report is completed and you have negotiated the necessary contingencies, you will draft a more comprehensive contract known as the “Purchase and Sale Agreement.” This will be the contract you use to move forward in the process.

“Caveat emptor”

As an investor, you want to know that the property you purchase is free from significant defects. In Massachusetts, the state follows the old common law rule of Caveat Emptor, or “buyer beware”. In short, it means sellers are not required to disclose many significant defects with the home. The exception to this is the presence of lead paint and the condition of the septic system. It will be up to you as the investor to do your due diligence to ensure you are entering into an agreement you want to be in. You will want to be sure to hire a licensed home inspector who thoroughly assesses the home, so you are made aware of any undisclosed problems

Rental law

You probably already know the basics: no discrimination based on gender, religion, sexual orientation, the landlord must follow sanitary code, the landlord cannot enter property at their will etc., but here are a few things you maybe don’t know about rental law in Massachusetts.

  • Tenancy agreements cannot contain illegal terms such as the tenant being responsible for everyday wear and tear, the tenant may not sue or report the landlord for sanitary violations, tenants may not form a union.
  • Security deposits must reside in a Massachusetts bank, in an account that collects interest, deposited no later than one month after the start of tenancy.
  • The landlord must pay the renter the interest earned on the deposit or let the tenant deduct that amount from a rent payment.

Title insurance

Understandably, you are looking to make your investment purchase as least costly as possible. You may be tempted to skip out on buying title insurance, but make sure you understand the full scope of its purpose before you do. Title insurance is a one-time optional payment that covers you as the homebuyer from any title defects. Potential defects include estranged heirs from past homeowners who stake a claim on the property, clerical errors on the deed and legal description, and undisclosed property liens. Lenders require this insurance to protect themselves for a reason. As with any other type of insurance, it can feel like a waste of money until you need it.

 

Whether you are just beginning your investment journey or are looking to grow your business, Mr. Property, LLC can assist you. From property management, rehab projects, snow removal, and real estate representation, we are passionate about serving our clients where it counts for them. Our team of industry experts can provide full property management services so you can focus on expanding your investment portfolio. Contact us today, and we will work with you to turn your real estate dreams into reality.

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