By Paul G. Kilmartin, Esq.
Nearly everyone, at some time in life, faces the challenges of buying and selling real estate. The purchase of a home may be the largest single investment a person will ever make and, therefore, careful consideration should be given to the issues involved in the transfer of real estate before any action is taken and throughout the course of the transaction.
The following information is intended to give you a better understanding of the procedures, problems and concerns involved in this important transaction.
Offer to Purchase or Binder
Once you’ve found the house you’d like to buy and have agreed on the price, you will probably be asked to sign a paper and pay a deposit. This paper may be called a binder, receipt, purchase offer or agreement and is usually prepared by the seller’s agent (that is, the seller’s real estate broker).
Any one of these papers may actually constitute a binding contract requiring you to purchase the house. Before signing it, you should consider seeking legal advice. Remember that once a contract has been signed, your rights and obligations are fixed concerning the transaction and your attorney may not have the opportunity to structure the contract to meet your objectives. This is especially true for homes purchased from foreclosing banks.
You should understand the contract terms and how they affect you. The other parties to the contract are normally under no obligation to tell you what the contract means and you may not understand the legal meaning of much of the terminology.
You should have an attorney represent you in the transaction and it is best to consult one before you sign any papers. Alternatively, you should insist upon including language in any preliminary written agreement making it subject to review and approval by your attorney.
Any preliminary paper you sign, whether it is an offer, binder or contract should include provisions allowing the buyer to conduct a physical inspection of the property, its buildings and systems (including radon, lead paint, asbestos, septic system and well water testing, if applicable) and give the buyer the right to withdraw from the agreement without penalty if the buyer is not satisfied with the results of the inspections. It is always recommended that you hire licensed professionals to conduct these tests/ inspections and that you personally accompany them during the inspection.
If there are repair issues disclosed from the inspections and you want the seller to address them you must inform your real estate broker and your attorney. Do not rely upon any verbal agreements to do anything. Always tell your attorney so these items can be included in the contract. Keep your attorney informed.
The contract of sale should identify the parties, the purchase price and how it is to be paid, contain an adequate description of the property being sold, the kind of deed to be delivered, the quality of the seller’s title to the property, a description of personal property included in the sale, the estimated date you are to take possession, and other clauses relating to the property and the parties’ respective responsibilities to each other.
It is imperative that the contract permit the buyer to cancel the transaction and provide for the return of the down payment if a mortgage loan can’t be obtained. This is usually referred to as a “Mortgage Contingency Clause”.
Typically the mortgage contingency clause will give the buyer until a certain date to cancel the contract due to a failure to obtain an acceptable loan commitment from a lender. If the buyer does not send notice of cancellation the contingency may be “waived” and the buyer may be legally bound to buy the property even though the lender has not approved the loan. Therefore it is imperative that you prominently note this date, be fully aware of it and keep in contact your attorney regarding the status of your loan application in relation to this important date. Do not be afraid to call your attorney and remind him or her about this date. Communication is key to a smooth transaction.
You should also pay close attention to the personal property listed in the contract (e.g. window treatments, appliances, light fixtures) as included or excluded from the sale to make sure it is consistent with your expectations and or the listing with the real estate broker. It is also prudent to make note of the make, model and colors of all appliances as occasionally a seller will assume that they can include any refrigerator or light fixture rather than the exact ones you saw.
As discussed in the inspection section, all repair items that are part of the transaction must be included in the contract. This advice pertains to any terms of the transaction. If the seller or a broker has promised you anything you must advise your attorney so that these promises can be included in the written contract.
Although a specific closing date is set forth in the offer, binder and the contract, that date is usually not firm. There is usually no legal obligation on the part of either party to close on that specific date unless there is either a “TIME OF THE ESSENCE” clause or a closing delay penalty clause in the contract. Contracts with foreclosing lenders are often an exception to this. We ordinarily do not include these items in our contract in order to allow for the scheduling flexibility needed between buyer and seller. IF YOU MUST CLOSE ON OR BEFORE THE CLOSING DATE AND CANNOT HAVE ANY DELAY, YOU MUST LET YOUR ATTORNEY KNOW BEFORE YOU SIGN THE CONTRACT.
The “title” to real estate is the right of the owner to its peaceful possession and use, free from the claims of others. Often, however, the exercise of that right is limited by the existence of other rights which are sometimes called covenants, easements and/or restrictions. To obtain electricity, sewers, telephone, etc., a prior owner may have given to the municipality or public utility the right to run its lines or pipes across his or her property to the house. Other often encountered easements provide for drainage of surface water, or access rights of way such as for a jointly-used driveway. These easements must be recognized by the owner in the use of the property and considered by the buyer who is purchasing the property.
There are other ways in which the use of the owner’s property may be limited. One is by restrictions in the deed; another is by local zoning law. Also, almost all land is subject to real property taxes, which if not paid, may result in the loss of title. Other debts owed on the property (for example, special assessments or levies) can also cause problems later on.
When you buy a home, you should be certain that you have the right to occupy it without interference and that you later will be able to sell or mortgage it without problems.
Your title insurance obtained through your attorney will cover these concerns. However, you should be aware that many of the restrictions discussed above cannot be removed. For example, the property could have an easement or restriction across a portion of the property where you had hoped to put a swimming pool or build an addition. In this situation, title would be “marketable” and “insurable” and neither your attorney nor the title company would consider this to be any problem. Your attorney is generally only concerned with ensuring that the house is “marketable” AS IS. THEREFORE, IF YOU HAVE ANY SPECIAL USE CONCERNS, WANT TO MAKE ADDITIONS OR ALTERATIONS, YOU MUST MENTION THEM TO YOUR ATTORNEY BEFORE YOU SIGN THE CONTRACT. YOU MIGHT ALSO NEED TO CONSULT WITH AN ARCHITECT-ENGINEER.
You should know that your title insurance does not always insure your property lines. This coverage can be obtained with a survey, which is a map of the property and the buildings on it, prepared by a licensed surveyor.
In New York, surveys are favored and are usually required if the transaction involves bank financing. We strongly advise against purchasing a home without a survey. Often an existing survey can be used in lieu of obtaining a new one. The existing survey must be brought current by physical inspection made by the title company.
You must be advised however that it is almost always a good idea to get a new survey. Although they do not occur frequently, significant issues can be brought to light due to a survey. For example, all or part of a building might not actually be on the property you are buying or a neighbor’s fence or garage might encroach upon the property. The encroachment raises possible adverse possession issues which could be very serious. Minor variations of fences and hedges however are very common and usually not considered to be serious issues.
Final or Pre-Closing Inspection
It is extremely important that you conduct a thorough pre-closing re-inspection of the property, preferably the day of the closing. The typical real estate contract provides that the seller is only obligated to remedy problems with the property discovered prior to the closing. These issues could be as significant as a furnace that is not working or a refrigerator that was removed by seller or as trivial as minor debris left in a garage or basement. If the buyer discovers problems after the closing there generally is no remedy against the seller. Therefore, a thorough pre-closing inspection is very important so that any issues can be addressed at or prior to the closing.
The “closing” of the purchase of your home is the part of the transaction in which you execute and receive all the documents required to convey the title of your home and to consummate your loan transaction with your lender.
Depending upon when your bank provides your attorney with the bank’s final closing costs, a day or two before the closing your attorney will advise you as to the amounts and types (e.g. personal, bank, teller’s or certified) of checks you will need to bring to the closing to pay the seller, the bank, the title insurance company and your attorney in full. More specific information relating to closing costs is provided below.
Be aware however that you will not simply be bringing a check payable to the seller for the difference between your contract deposit (often but not always 10% of the purchase price), the amount of your loan and the purchase price.
Your lender will normally deduct the closing costs from the loan proceeds and therefore you will not have the full loan proceeds available to pay the seller. This is called net funding.
In addition, you will usually reimburse the seller for property taxes and other items paid in advance by the seller.
Finally, the closing documents are reviewed to be sure that the conditions and promises of the purchase contract and your loan commitment are fulfilled. Also at this time, the balance of the purchase price is paid to the seller and at the conclusion, you receive the keys to your new home!
Please feel free to call or email with any questions regarding this material in general or your transaction in particular.
Paul G. Kilmartin, Esq.
KILMARTIN & KILMARTIN
Attorneys at Law
876 McLean Avenue
Yonkers, New York 10704