|Lynda Nugent Smith
|Keller Williams Realty
4725 Veterans Memorial Boulevard
Metairie, LA 70006
Considering a Louisiana Purchase?
When you are considering a real estate or other business venture in Louisiana, some basic knowledge of the state’s unique legal code is highly recommended. In addition, you should be aware of other local issues such as real estate terms and forms, financing, insurance requirements and the need for some expert local guidance.
Louisiana is the only state in the USA that embraces the Napoleonic Code, which is based on civil law derived from French and Spanish traditions. All other states base their legal code on common law inherited from the English legal system.
Because of our legal code, there are some terms to bear in mind.
Redhibition: the legal right for a buyer to demand a refund or reduction in purchase price due to a hidden defect(s) that had the buyer known of the egregious defect, the property would not have been purchased in the first place.
Sold As Is With a Waiver of Redhibition: a clause often attached to a Real Estate Agreement to Purchase that permits buyer and seller to waive the legal right (except in cases of fraud or intentional deception on the part of the seller) of the buyer to sue the seller in the event he discovers defects in the property after purchase. Therefore, the burden of property condition discovery is up to the buyer prior to closing.
Forced Heirship: a form of inheritance that has two parts, a disposable portion and a forced portion. The disposable portion may be left to anyone by choice. The “forced” portion is dictated by law (with certain caveats). All legitimate offspring under the age of 24 are entitled to an equal portion of the decedents estate unless disinherited. In Louisiana, a surviving spouse is not a forced or automatic heir. For a spouse to inherit any portion of the deceased’s disposable ownership, a will must specifically dictate their wishes. A will, written by an attorney and witnessed, is highly recommended in Louisiana.
Usufruct: the ability to use and occupy a property, wholly or partly owned by other(s), after the death of (usually) a spouse. Generally it applies to a jointly owned residence and allows the surviving spouse to remain in the property and enjoy the use until such time as he or she dies or remarries.
Lesion Beyond Moiety: a provision that grants the ability to rescind the sale of immovable property (real estate) if the sale or exchange was for less that on half the value of the property at the time of sale.
Community Property: nine states including Louisiana operate on the premise that all assets (specifically real estate for our purposes) acquired during marriage, except for gifts and inheritance to an individual, is part of the community and therefore, jointly owned on a 50/50 basis.
Homestead Exemption: Louisiana allows that a primary owned and occupied residence (one to four units only) is eligible for exemption of the first $7,500 of assessment, based on 10% of the entire property’s value. For example, if a property sells for $100,000, it is assessed for $10,000 or 10% of sales price. $7,500 of the $10,000 is exempt if owner occupied. The property tax millage rate is then applied to the balance ($2,500) and not the entire value of the property. Each parish and municipality has it’s own set of tax or millage units that are assessed based on the vote of the residents of that community.
Parish: Louisiana is divided into 64 primary civil divisions called Parishes that in other states are called Counties. Louisiana was once ruled by the French and Spanish, both predominately Roman Catholic. Current parish borders roughly coincide with historic church divisions.
Mandated Forms: In order to maintain consistency in real estate transactions, The Louisiana Real Estate Commission requires the use of certain real estate forms. Licensees must provide potential buyers or sellers with the following forms:
- Agency Disclosure that explains representation and relationships of all parties.
- A Duel Agency Consent and Disclosure form is required when an agent is representing both buyer and seller in the same transaction. (Although not a recommended relationship, the license law does allow for this practice.)
- Agreement to Buy or Sell Residential Real Estate form, currently a six page legal sized document, is also mandated.
- Property Condition Disclosure, a four page informational document, is required on residential properties.
Also available are several other documents or disclosures for the use of licensees or the general public. See the Louisiana Real Estate Commission web site for all forms.
Transfer Tax: There is no state transfer tax in Louisiana.
We can’t stress how important it is to use a Louisiana state licensed, locally based lender. Each area has it’s own unique values, locations and property types. Rarely do online or national lenders without local offices know the market and the values as well as the people who live there. The use of local appraisers familiar with locations and changing trends is also invaluable. Appraisal services using a rotating list of appraisers from far and wide, just does not work in a local market.
Louisiana lending laws require licensing of mortgage brokers to protect the public. This is one reason for the state’s the low foreclosure rate.
Getting recommendations from your REALTORÒ is your best resource for finding the right lender for your specific circumstances. As experienced agents, we deal with a cross section of lenders throughout the market place.
Interest rate is important, but not the only consideration. Sometimes other costs involved in borrowing money can outweigh rate or terms. A quick approval or closing may be of the essence, so check carefully.
Generally, in Louisiana the buyer pays the bulk of the closing costs. Be sure and get estimates on insurance and taxes because you will, in most instances, be escrowing in advance for payments due next year. It can be many hundreds to thousands of dollars that you may not have counted on.
If lending guidelines or policies allow, a buyer may ask the seller to help with closing costs to stretch dollars. But don’t kid yourself. The money comes from somewhere, so the seller may need to get more for the house if he is expected to assist with costs.
Flood insurance can be tricky. The rate depends on the flood zone of the property and how high above the mid point of the street the house’s lowest level sits. A flood elevation certificate determines this.
Just because a house might not be required to have flood insurance doesn’t mean that it may make since to consider buying it. Generally, if a house is not within a required flood zone, the insurance premium will be very low. In most of south Louisiana flood insurance is highly recommended.
Many flood policies are assumable and at potentially lower rates. This policy, unlike the homeowners insurance, attaches to the house, not the owner.
Availability of homeowners/hazard insurance has loosened up quite a bit since Hurricane Katrina. The state has done a wonderful job of adopting new building codes and making sure that home and business owners have available affordable insurance. Citizens Insurance, the state’s insurer of last resort, is solvent and continues to offer peace of mind to residents by its very existence. Insurance Commissioner James Donelon, is a good steward of the public trust and has helped attract new insurers into the state. Ask for recommendations of reliable insurance providers in the local area.
A Tale of Two States
North Louisiana and South Louisiana have one thing in common, they both lie within the borders of the same state. Shreveport is as different from New Orleans as New York City is from Syracuse. They are just not at all alike.
The same can be said of many of the local, individual real estate markets throughout the great state of Louisiana. The rolling hills and red dirt in the northern part of our state don’t exist in the flat, fertile lands near Lafayette or state capitol of Baton Rouge. (And local cuisine varies as drastically but with one big connection: it is some of the best food you will ever eat!) So in contemplating a move or investment in Louisiana, get an interpreter, someone who can help you navigate the local markets. With statewide real estate experts in our network, we can help you locate just the right professionals to meet your real estate needs, north, south, bayou or Big Easy.
We are located in the Metro New Orleans market. Feel free to call us for consultation on “anything real estate” in Louisiana: www.metro-new-orleans.com.