What is Home Equity Agreement Drafting?
A home equity agreement is a legal contract in which an investor pays the owner of a property for a share of the home’s future value. One of its main benefits is that the owner receives immediate money without having to rely on monthly payments.
The owner will have to repay the cash advance and the investor’s share of the home’s value, which can be triggered by an event such as selling or refinancing the home.
If you need to draft a home equity agreement, read the rest of this article for clarity about key terms to include in it, how to draft it, and how an experienced lawyer can help you with the contract drafting process.
What are Key Terms in a Home Equity Agreement?
A home equity agreement usually contains the following core components:
- Upfront payment. Specify the lump sum paid to the homeowner.
- Equity share. State the percentage of the home’s future value that will be owed to the investor.
- Valuation. State how the home value is established, such as if an independent appraisal is required.
- Term. Define the length of the agreement before the final payout is triggered.
- Settlement. This is the final lump sum that must be paid, either when the term ends or earlier than that if the home is refinanced or sold.
- Fees. Explain all additional costs, such as origination fees, closing costs, and any other amounts.
What are Tips for Drafting a Home Equity Agreement?
When writing terms in a home equity agreement, you should consider some additional tips during the contract drafting process.
Define the Agreement Purpose
The agreement should clearly explain the arrangement since a home equity agreement isn’t a loan or traditional home sale. Avoid any ambiguous language that misrepresents the transaction.
Outline the Initial Payment
You should state the exact amount that the homeowner will receive, and on what payment date. Include any fees that will be deducted from the payout at closing, such as independent appraisal fees.
Include a Settlement Formula
In a home equity agreement, your settlement is a final lump sum paid to the investor so that you can exit the contract. Establish the calculation for the settlement formula so that it’s clear to both parties. You should explain how this amount will be amended if the property increases or decreases in value.
Address Property Maintenance
It’s important to specify the homeowner’s duties for how they will maintain and upkeep the property. Explain how approved repairs and emergency repairs will be considered.
Explain Insurance Obligations
For clarity, state which party will be responsible for homeowner’s insurance and other expenses, such as utilities and operational costs. The agreement should state that the homeowner takes full responsibility for the property.
Establish Defaults and Remedies
Your agreement should clearly detail what constitutes a breach and what remedies are available to both parties. These must be aligned with the relevant laws, which a lawyer can assist you with. This is important because these clauses need to be drafted with language specific to your jurisdiction’s requirements.
Should You Hire a Lawyer for Home Equity Agreement Drafting?
Hiring a lawyer to draft your home equity agreement is a good move so that your financial arrangement is properly defined and your interests are protected.
Here’s a rundown of some activities a lawyer will conduct during the drafting process.
- Reviewing the property ownership and title. They’ll verify the homeowner’s legal ownership of the property and identify any existing liens or mortgages.
- Identifying the parties and property covered by the agreement. This includes establishing the parties’ legal names and the property’s legal description.
- Drafting payment terms that are clear and specific. A lawyer will specify the amount that the homeowner will receive and on what payment date.
- Considering the property’s valuation. They’ll help you define how the home’s value will be determined.
- Explaining the settlement calculation. They’ll explain exactly how the amount payable at settlement will be calculated for clarity.
- Establishing insurance and property tax obligations. They’ll specify which party must maintain insurance premiums and pay property taxes to prevent misunderstandings or disputes.
- Reviewing the home equity agreement. If you’ve drafted your agreement, you can hire a lawyer to thoroughly review it for you so that all its terms are clear, balanced, and legally sound.
Where to Find a Lawyer for Home Equity Agreement Drafting
If you’re looking for a lawyer to draft your home equity agreement, you don’t have to call local traditional law firms. Instead, you can use an online legal platform that provides you with a network of lawyers who have experience in drafting legal contracts for clients.
ContractsCounsel is one of the largest online legal marketplaces that connects you to a curated network of lawyers who have been vetted on the platform.
If you need to hire a lawyer on ContractsCounsel, here are the easy steps to follow from your device:
- Go to the ContractsCounsel marketplace.
- Select ‘One-time project’ and ‘Create or update contract.’ If you’d prefer to hire a lawyer to review your agreement, you should select ‘Contract review’ instead.
- Post your project for free. Mention some details of what you require to match with lawyers who meet your requirements.
- Wait for bids. You’ll receive multiple bids from lawyers on the platform who are ready to work with you.
- Review the platform’s lawyer data. The information you can access includes the lawyers’ location, expertise, years of experience, credentials, and client ratings for previously completed projects on the platform.
- Select a lawyer and hire them to draft your home equity agreement for a flat fee.
