Real Estate Contract Lawyers
Real Estate Contract
Arguably the most important part of a real estate agreement is at the very outset, after an offer is accepted. Usually, the listing broker will send all attorneys a “broker’s memo” with basic deal terms.
The real estate lawyer’s responsibility is to ensure the client is informed and protected legally speaking. A real estate lawyer drafts and/or negotiates a contract of sale arising out of any accepted offer.
There are important things that an attorney is looking for when drafting, negotiating and reviewing a contract of sale. All of this takes place immediately after the offer is accepted, and usually when all parties are anxious to move the process quickly and have “signed contracts” immediately. A diligent attorney will represent a client fully and avoid rushing any deal that may be to the detriment of his or her client.
Real Estate Contract of Sale
Real estate lawyers will review public documents to determine who the legal owner of the property is. A property can be owned by an individual, individuals owning the property jointly, by a corporate entity, or by a trust, among others. It is imperative to determine who the buyer is purchasing the property is, and confirming that the seller of the property is the rightful owner. An attorney will review the local online land records to determine ownership.
Type of Property Being Sold
Another thing a real estate attorney will do is to determine what type of property is being sold. A property might be residential, mixed use or commercial. Of course, there are also different subjects of these types as well. For example, a residential property can come in the form of a single family home, multi family home, condominium (condo), cooperative (coop), townhouse, duplex or something else. Determining what type of property is being sold will guide how your real estate transaction will be handled.
The purchase price that all parties have agreed upon is obviously of great importance as well. Usually a broker will send an attorney a memo with the agreed upon and accepted offer. The attorney will review the memo and confirm this amount with his or her client. Although this particular item is something most people think is never an issue, we have seen cases where there was a misunderstanding or typo in brokers’ memo. It is always advisable for the parties to the agreement to confirm the purchase price agreed upon when consulting with his or her lawyer.
Another pivotal item that an attorney will review is what down payment has been agreed upon. Many times, the parties have not had a “meeting of the minds” as to the down payment, and a seller’s attorney inserts a predetermined percentage down that was never discussed. An attorney will review and confirm whether you have agreed to any set down payment amount.
Real estate transactions can be paid “all cash” or financed. If being financed, the contract of sale will state the general terms of the financing that will be sought, or detail specifics as to what type of financing will not be permitted. These are basic terms that all parties should be in agreement on.
New York Real Estate law, requires a seller to provide a property disclosure statement disclosing the condition of any property. A seller of residential property must provide this disclosure or elect to pay the purchase a $500 credit in lieu of providing this disclosure statement.
NY Real Property Law (“RPL”) Sec. 462(1) states: “[E)very seller of residential real property pursuant to a real estate purchase contract shall complete sign a property condition disclosure statement as prescribed by subdivision two of this section and cause or a copy thereof, to be delivered to a buyer or buyer’s agent prior to the signing by the buyer of binding contract of sale. Nothing contained in this article or this disclosure statement intended to prevent the parties to contract of sale from entering into agreements of any kind or nature with respect to the physical condition of the property to be sold, including, but not limited to, agreements for the sale of real property ‘as is.
RPL Sec. 465(1) states: “In the event a seller fails to perform the duty prescribed in this article to deliver a disclosure statement prior to the signing by the buyer of a binding contract of sale, the buyer shall receive upon the transfer of title a credit of five hundred dollars against the agreed upon purchase price of the residential real property.”
To avoid making any misstatements as to the condition of the property, most sellers exercise their right to provide a buyer with a $500 credit in lieu of any disclosure. By doing so the seller limits any potential liability or exposure arising from an “as is” sale.
The Real Estate Contract of Sale will also state whether the property is being purchased with a tenant in possession of the property. An attorney will review to determine whether the client will be taking possession of property “free and clear” at the time of closing. If there are tenants, an attorney will want to make sure that a client is aware of that fact. Also, an attorney will investigate further and request copies of any signed leases, rent schedule, the terms of the lease, confirm that any security deposits will be dealt accordingly, whether the tenant is a government subsided or rent controlled tenant, etc. A real estate attorney will also seek to determine if there is a right of first refusal in the terms of any lease.
The contract of sale will also list the brokers involved in any real estate transaction as well as any commissions due at the time of closing. The attorney will require a copy of the signed brokers commission agreement.
The parties will usually agree on a closing date. The closing date will depend on the type of transactions and whether the sale is an “all cash” transaction or will require financing. Sales involving a mortgage will usually set a closing date of at least 45 days from the date of signing.
Time is of the Essence
If the contract specifies that a closing date take place on the specified and that “time is of the essence”, this means that no adjournment will be permitted.
“When a provision that time is to be of the essence is inserted in a real property contract, the date established as the law day takes on special significance When there is a declaration that time is of the essence, however, each party must tender performance on that day unless the time for performance is extended by mutual agreement.” Grace v. Nappa, 46 N.Y.2d 560, 565, 389 N.E.2d 107 (1979).
If the property does not close by the set date under this circumstance, the seller can keep any contract deposit if the sale is not consummated by the specified date. A competent real estate attorney will advise you what the ramifications of a “time is of the essence” clause are. Usually, if the real estate deal is being paid “all cash”, time is of the essence is more allowable. However, where a mortgage will be taken out, an attorney will usually advise against any such clause, as no party has any control over how long a bank will approve a loan.
Mortgage Contingency Clause
At its essence, a mortgage contingency clause allows for a prospective purchaser buying a property with financing (mortgage), to cancel the contract if he or she applied for a mortgage and was unable to obtain said mortgage.
There are a number of requirements that must be met for a purchaser to cancel the contract based on being unable to obtain financing. In order for a purchaser to cancel a contract, the buyer must apply for a mortgage, must apply for same immediately after the contract of sale is countersigned, must forward all required information to the bank, if the bank issues a commitment that is lower than anticipated, and more. If one or more of these are not met, the purchaser may lose any contract deposit.
The contract of sale will specify the amount of time the buyer has to order a title search. The title search will show any encumbrances, judgments, violations, liabilities, bankruptcies, lawsuits, etc. All parties should work together to clear any exceptions to title. Ordering title and receiving a title report usually takes at least 2-3 weeks or longer depending on the title results.
The purchaser’s attorney will order title insurance. Title insurance insures you against any encumbrances, violations etc. that a title search missed. The title insurance protects the purchaser and ensures that he or she will have marketable title.
“By definition, title insurance involves insuring the owners of real property against loss by reason of defective titles and encumbrances thereon and insuring the correctness of searches for all instruments, liens or charges affecting the title to such property . . . . Essentially, therefore, a policy of title insurance is a contract by which the title insurer agrees to indemnify its insured for loss occasioned by a defect in title.” L. Smirlock Realty Corp. v. Title Guarantee Co., 52 N.Y.2d 179, 187-88, 418 N.E.2d 650 (1981) (internal citations omitted).
If the property being sold has a mortgage, this mortgage will show up on the title report. The seller’s attorney is required to obtain the payoff letter prior to the closing. Most banks require at least 30 days to order a payoff letter.
The seller’s attorney will also need to provide prove that any other encumbrances have been removed such as violations, fines, open permits, etc.
The purchaser’s attorney will usually request a marked up title at the time of closing.
The purchaser should conduct due diligence by hiring a home inspector or engineer to inspect the property for any physical defects, obvious or hidden defects.
Prior to closing, there is also a walk through inspection to ensure the property is in the same condition at the time the contract was executed.
Time to Perform Obligations
The date that the seller counter signs the contract of sale is the moment time begins for the buyer to perform certain obligations. These obligations include, but are not limited to, taking prompt steps to obtaining any financing (mortgage), ordering title search, and more.
Dealing with Issues Arising At A Real Estate Closing
An attorney can hold funds in escrow to ensure all title issues are cleared such as violations. For the most part, however, it is recommended that any issues are dealt with before the time of closing. The seller should be required to deal with all issues prior to the time of closing. An attorney can insert a clause requiring seller to clear all encumbrances under the right of the buyer cancelling the contract. Before the closing, the seller should obtain any water and utility readings in order to prorate any owed amounts.
Remedies for Breach of Contract
Depending on the terms of the contract, if the buyer is in breach of contract, the seller is permitted to retain the contract deposit. If the seller is in breach of contract, the buyer may require specific performance and force the seller to sale the property.
If the seller fails to return the deposit, the buyer file a lis pendens (notice of pendency) advising the world of the dispute. The existence of a lis pendens may make it more difficult for the seller to sale the property.
Preparing for the Closing
The sellers attorney will prepare the deed of sale and present it for execution at the time of closing.
There are three types of deeds:
- Bargain and Sale Deed with Covenant Against Grantor
Seller “covenants that it has not done or suffered anything whereby the said premises have been incumbered in any way whatever.” RPL Sec. 258.
- Bargain and Sale Deed without Covenant Against Grantor
No provision included in deed that the Seller covenants that the premises are not encumbered in any way.
- Quitclaim Deed
Seller only quits claim and releases “all the estate and rights of the [Grantor] in and to said premises.” RPL Sec. 258.
The preferable deed is the Bargain and Sale Deed with Convenant Against Grantor.
The sellers attorney will also prepare any State and City transfer documents such as NYC Real Property Tax Return, New York State Real Property Transfer Report (RP-5217NYC), New York State Combined Real Estate Transfer Return (TP-5584).
Taxes – The Seller usually pays the transfer taxes except if it is a sponsored deal or new construction.
NYC Taxes – In NYC, if the property is less then $500,000 or less, it is 1%. If more then 500,000, 1.425%.
NYS Taxes – At state level, the tax is $2 for every $500 of the value of the property. A mansion tax is also added if the property is worth more then 1 million dollar.
Additional Closing Documents
FIRPTA Statement – Seller prepares a FIRPTA statement that the seller is not considered a “foreign person” under the “Patriot Act”.
Post Closing Agreement – a post closing agreement allows the seller to stay on the property for a set number of days after the closing. Any such agreement in any rider should specify that the no landlord tenant exists between the seller and buyer.
Escrow Agreement – a post closing agreement where an attorney holds an amount in escrow to ensure specific problems are remediated.
Other documents that may be required: an Affidavit of Compliance with Smoke Detector Requirement (one or two family), DEP Customer Registration Form for Water and Sewer Billing, Affidavit in Lieu of Registration.
Credits & Adjustments at the Time of Closing
Adjustments may be made at the time of the closing. For example, adjustments for water and utility can be calculated on a quarterly basis and applied. Real Property Disclosure $500 adjustment will also be applied (if applicable). Seller will pay broker’s commission, any outstanding mortgage and pays the title bill.
On the closing date, you can expect a room full of people seeking to consummate the real estate transaction.
The following individuals will usually be in attendance:
- Seller’s Attorney
- Buyer’s Attorney
- Title Closer
- Lender’s Attorney
- Listing Broker/Listing Real Estate Agent
- Purchasers Real Estate Agent
Contact Our Real Estate Contract Lawyers
Our real estate contract lawyers in Yonkers, New York can assist you with all of your real estate closing matters. You can schedule a free consultation with attorney Cesar Zuniga, Esq. by calling our number, (914) 677-1330.
We also love serving all of the Yonkers community, including Alexander Smith, Bronxville Heights, Bryn Mawr, Centuck, Crestwood, Colonial Heights, Getty Square, Homefield, Lincoln Park, Ludlow, Nepera Park, Nepperhan, Park Hill and more.