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Real Estate 101

Buying or Selling Your Home

Selling or buying a home is, for most people, the largest and most important financial transaction of their lives. For this reason, it is important that a competent, experienced real estate lawyer is involved in every aspect of the transaction Gary F. Woodend has the experience to assist individuals and families through this complex transaction.

THE REAL ESTATE CONTRACT

The real estate contract puts into writing the agreement between the home owner (Seller) and the home buyer (Purchaser). The agreement between these parties outlines the price, mortgage terms, closing date, possession date and other agreements reached between the parties. The written contract is basically the roadmap that guides you through to your closing.

The contract is usually prepared by the real estate agent, if the seller employs one, or the seller’s attorney. The terms of the closing are clearly written in the contract and then signed by the Purchaser and the Seller. Once signed by both parties, the deal is sealed and a timeline to closing begins.

– Attorney Review Clause

One advantage of a real estate lawyer prepared contract is that it does not have to include an attorney review clause, and is binding upon all parties when signed. By law, a Realtor prepared contract must contain a three-day attorney review clause.

– Home Inspection

All well-written contract provide that the Purchaser may and should obtain a professional inspector’s services to inspect the property for any material deficiencies. This is important to the Purchaser because a professional inspection should detect any problems with the roof, foundation, plumbing, electrical and mechanical systems, as well as indicate the life expectancy of appliances and systems that bear watching even though they are currently in good repair. Many times inspectors find deficiencies that sellers are unaware exist because they do not usually inspect their property. A good inspection allows a Purchaser and Seller to go through to closing without worrying about unknown problems popping up.

– Earnest or Deposit Money

The earnest money is an amount paid by the Purchaser to confirm the agreement. The deposit earnest money guarantees Purchaser will close on the purchase, or else lose that money. The earnest money is usually due upon the signing of the contract. The money is most often held in escrow by the real estate agent, if there is one, if not by seller’s real estate attorney or title company.

– Mortgage Contingency

Most real estate contracts are contingent upon the Purchaser obtaining mortgage financing approval. This part of the agreement determines the type, amount and costs involved in the Purchaser obtaining their mortgage approval. It also allows for the termination of the agreement if Purchaser is unable to obtain their mortgage approval in the time specified.

– How Should the Buyer Take Title to the Property?

There are three ways to hold title to real estate: Tenants in Common, Joint Tenants with Rights of Survivorship, and Tenants by the Entireties. These are more thorougly explored by following the following link: How to Hold Title to Real Estate.

– Closing Date

The final step in the process is the real estate closing. This is the date where all the parties, the attorneys, and the lender meet at the office of the title insurer. During the closing, the Purchaser signs all their mortgage documents, the seller signs all their documents transferring ownership, and the title company representative makes sure all the documents meet the requirements of the lender and the title company to insure transfer of good title and insuring that title.

The essential document of the closing is the Closing Disclosure statement, formerly known as the HUD-1.  The buyer and seller each have their own Closing Disclosure statement. We often use a document that combines both CD’s, which is called an ALTA, after the American Land Title Association. The closing statements contain all the figures of money to be paid by the parties to each other or to providers of essential services for the closing. The base figures are derived from the contractual agreements between the parties, including the purchaser price, the earnest money, the credit for the taxes, and credits for Seller prepaid items such as association assessments or prepaid water bills. The final figures tell the Purchaser how much money he needs to bring to closing, and how much the Seller will be receiving at closing.

– Possession Date

The final act of any closing is the transfer of possession, in the form of the keys to the property, to the Purchaser. Usually, this takes place at the end of the closing transaction after the deed has been signed and all money has been paid and received. However, by agreement, the parties can delay the possession date to aid seller in their move. If parties agree to delay possession after the closing date, the Seller will usually pay the Purchaser an amount per day of use for rent. This amount usually equals the Purchaser’s principal, interest, taxes and insurance per day. However, it can be whatever daily amount the parties agree to. In addition to this amount, the Seller is usually required to deposit money into a Possession Escrow at closing. The Possession Escrow guarantees the the Seller will deliver possession on the date agreed or forfeit a percentage of the escrow amount for each day of the delay. This would all be spelled out in a “Use and Occupancy Agreement” prepared by our office.

PREPARING FOR CLOSING

While the Purchaser is working with his lender to obtain his mortgage approval, the Seller’s real estate lawyer or real estate attorney is generally preparing documents for the closing, according to the requirements of the contract. These documents include: title, survey, seller’s mortgage payoff statement, realtor’s fee statement, state, county and local transfer requirements and all transfer documents. Don’t wait until the last minute to order the township inspection for smoke alarms, fire extinguisher and carbon monoxide detector. Also, the seller should order the mortgage payoff letter as soon as a fairly firm closing date is established, but be careful about the timing of your mortgage payment if closing is before the 15th day of the month.

– Title Insurance

The real estate contract usually requires the Seller to provide proof of good clean title prior to the closing. The Buyer’s real estate lawyer or real estate attorney will order a title commitment from a title company that he has regularly worked with. This commitment is a snapshot of any liens or encroachments against the property as of the date given. It discloses any current real estate taxes that are due and payable, as well as a history of any past taxes due. It discloses the names of the parties in title as well as any mortgages or home equity loans placed against the title. It shows matters of survey such as property setback lines, easements for utilities or other matters of public record. Finally, it discloses any judgments or liens placed against the property or against either the Seller or Purchaser. The title commitment is then cleared of all the objections prior to closing so that title can be insured to the Purchaser and Purchaser’s lender.

– Survey

Every lender and title company require a recent survey at closing so that survey title matters may be clearly insured. The contract requires Seller to provide this survey as proof of good clean title. Survey requirements vary by contract, but essentially the survey must show the lot lines, corners, setbacks, easements and any encroachments against these things. For example, if your neighbor’s shed is on your property, it encroaches on the property and should be moved before closing. Survey matters are generally resolved when clearing other title objections.

– Mortgage Payoff

Most properties have one or more mortgages recorded against it. These must be paid at closing in order to deliver an unencumbered title to the Purchaser. Seller provides his attorney or the buyer’s title company with all his mortgage information so they can obtain a payoff statement from each lender. More and more, however, the lenders are requiring that the sellers request this themselves. Included in the payoff statement from the lender is the promise to release the mortgage within 30 days of payment in full of the statement amount. The title company relies on this document to pay off the mortgages properly and insure good title to Purchaser and Purchaser’s mortgage company.

– Local Ordinances

The State of New Jersey has inspection requirements which include smoke alarms, fire extinguishers, and carbon monoxide detectors. However, many municipalities have their own requirements which may require a more through inspection. The real estate agents and Seller’s attorney will ensure that all local requirements have been fulfilled prior to closing.

In addition, local homeowner associations or condominium associations also have requirements which must be met prior to a closing statement will be issued for the closing. These statements are necessary for title clearance.

AN EXPERIENCED REAL ESTATE ATTORNEY IS ESSENTIAL

Once signed, the real estate contract requires the Seller and Purchaser to do a great many things within certain time periods at the risk of financial loss. It is suggested that you speak to an attorney before the contract is signed to advise you of issues that may be peculiar to your situation. An experienced real estate attorney who concentrates on this area of law may be the best investment you make in dealing with this complex transaction. Gary F. Woodend has handled several hundred of real estate transactions and Wills. Contact Gary F. Woodend (609-654-5489) to help insure a smooth and successful transaction.