Practice Areas: Residential Real Estate Purchase and Sale
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Please note: What follows describes the usual stages of the purchase and sale of a single family, fee simple residence. The procedures and concerns differ somewhat if the property is a condominium, a co-operative ("co-op") or is located in a planned unit development and/or is a country club property.
Buying a home, whether it is your first or twenty-first is a significant event. Most of us find it necessary or helpful to seek the advice of professionals before we commit ourselves to the task. In going through the process, one should expect to perhaps consult a real estate broker, a mortgage broker, a loan officer, a financial consultant, a home inspector, a surveyor, and, of course, an attorney.
The information below cannot substitute for the subject-specific advice of a professional, but we hope that the overview it presents will better prepare you for what lies ahead, as well as help you to ask the right questions.
Also, please keep in mind that this article covers closing procedures only. What is meant by closing procedures is the process which begins once a Buyer and a Seller are prepared to sign a contract, and which ends at closing, when ownership is formally transferred. There is obviously much that takes place prior to the time a Buyer and a Seller get together, such as for instance, how much to spend to purchase a property, and which town to look in. These are important matters that cannot be properly condensed into a brief article, and which are best addressed with the help of a qualified real estate professional.
We have organized the information in this article in the same manner that the closing process would actually take place: chronologically. We thus begin with the contract of sale, and end with the closing of title.
Finally, we expect that even after reading through this article, you might have some questions or comments. Please feel free to call us at anytime, and we will do our best to help you.
The contract of sale
You have reached an agreement to buy at a particular price. In most cases, there is a real estate agent involved, and the agent prepares a contract for signature by both parties. We urge you to consult an attorney before you sign any document. The reason for this is that depending upon the state, there may or may not be a right to have the contract reviewed by an attorney acting on your behalf. In Florida, real estate brokers prepare contracts and these contracts are not subject to review. The time to find out if your interests are adequately protected is before you are bound. In New York, real estate brokers may not prepare contracts at all. In New Jersey, real estate brokers may prepare contracts for one to four family homes, but there is a required three(3) day right to review by an attorney to protect you.
After the Contract is Signed
At this point, the Buyer should immediately begin the process of choosing a lender and applying for a mortgage. At the same time, the attorney for the Buyer or the attorney for the Seller or the title insurance company (depending upon what state you are buying in) will be conducting searches or arranging for searches to be performed to ensure that the Seller has good title to the property being sold. Those searches will be part of what is known as a "Title Binder" or "Title Commitment." The title binder includes a search of the title to the property, a judgment search of both the Buyer and the Seller and a commitment to issue title insurance. Title insurance protects the Buyer in the event title is ever found to be defective during the Buyer's ownership of the property. In that case, the title insurance company will indemnify the Buyer, up to the amount of the title insurance, which is usually the same as purchase price.
Our firm acts as an agent of Attorney's Title Insurance Fund in Florida. For information on The Fund, click here.
At the same time, the Buyer's attorney will be waiting for the Buyer's lender to issue what is called a "Mortgage Commitment", as well as instructions for the attorney to close the loan. A mortgage commitment is a promise by the lender that the borrower will receive a loan to finance his or her purchase, subject to certain conditions being met. These conditions are not usually difficult to satisfy.
Applying for a Mortgage
Most often, the Buyer is interested in obtaining the lowest rate possible on the loan and considers other factors such as reputation and service to be secondary. An experienced Buyer will often realize that the rate quoted may not be the most important factor, and may not be available at closing. Again, however, the more information the Buyer has at his or her disposal, the better. For example, the rate a particular lender charges may be low, but the closing costs the lender requires the Buyer to pay may be higher than another lender's. Thus, the Buyer should seek the opinion of others more knowledgeable in the field, beginning with the real estate agent, the attorney, and others, such as mortgage brokers and loan officers.
Comparing Mortgages as to Cost
The Interest Rate
The monthly mortgage payment will of course depend on the interest rate, and the typical borrower will be looking for the lowest possible rate to finance the purchase. Once the borrower knows the rate, the actual monthly payment for that mortgage can be calculated.
Even if the rate were the only thing of importance to a Buyer, comparing rates is not all that straightforward. Most mortgages nowadays require a Buyer to pay "points" in connection with the loan. A point is equal to one (1%) percent of the amount of the mortgage. Thus, if a loan is quoted as requiring the payment of two points, this means that the Buyer will be required to pay a sum equal to two percent of the amount of the mortgage.
There are other costs involved in obtaining a mortgage. One very common cost is the application fee. Other costs are credit report fees, appraisal fees, and other fees that a lender may charge the borrower in connection with a loan. Except for the application fee, these costs are normally paid at closing.
The lender will, in advance of closing, estimate all the costs involved and give the prospective borrower a disclosure form that sets forth these estimates. This gives the borrower advance notice of what costs he or she might be expected to pay. Yet since the lender usually cannot prepare these estimates before the borrower actually submits an application for a mortgage, this notice may come after the borrower has already paid an application fee. Once the borrower has paid that fee, he or she may be reluctant to go to another lender afterwards. There are also other costs that are not within the control of the lender, such as title search fees and attorneys fees. As such, it should be stressed again here that the prospective borrower should try to gain as much information as possible regarding a proposed loan. Most loan officers and others involved in the closing process, including of course the attorneys, can also provide some estimates. It is always a good idea to ask.
The Mortgage Commitment
After the Buyer has applied and all the documentation the lender requires has been submitted to the lender, and if the lender has approved the loan, the lender will issue the mortgage commitment. At this point, the Buyer's attorney and the Buyer will begin complying with the conditions of the mortgage commitment. The closing can usually occur within 2-3 weeks after the Buyer obtains the mortgage commitment.
Preparing for Closing
At this juncture, the attorneys will arrange for a closing time and date with all parties concerned. Everything is usually prepared in advance, so, one or two days prior to the closing date, each party will be informed by his or her attorney as to the costs and other things to be expected at closing.
In New York, the closing is usually held at the office of the attorneys for the Buyer's lender, and the title company hired by the Buyer's attorney will act as the settlement agent. In New Jersey and Florida, the closing is usually held at the offices of whichever attorney is acting at the settlement agent. The "settlement agent" is responsible for seeing to the application of the proceeds of the sale to all the proper parties. In other words, the settlement agent will collect all the monies from the Buyer and the lender, and then use these monies to pay the Seller, the broker, the title insurance company, and all others that are entitled to be paid. All these payments are itemized and reflected in a document known as a RESPA or HUD-1 (a form required by the Real Estate Settlement Procedures Act, hence the acronym "RESPA"). At closing, the RESPA is normally the first document that is presented for the signature of the Buyer and the Seller, so that both can see exactly how the finances of the transaction work out. Other documents that need to be signed are, in the case of the Seller, the deed that the Seller is delivering as well as various affidavits and related documents, and in the case of the Buyer, all the documentation required to be signed by the lender, including the mortgage and the note. A Buyer who is getting a mortgage can expect to be going through and signing many more documents than the Seller.
The closing is usually attended by the Buyer and Seller and their respective attorneys, and the real estate brokers. The lender always attends in New York, but rarely, if ever, attends in New Jersey or Florida, instead relying upon the settlement agent to follow its instructions. In New York, the title company sends a representative (known as a "closer"), and acts as the settlement agent. In New Jersey, the title company does not attend unless a special request is made for such attendance, instead relying upon the Buyer's attorney, who acts as the settlement agent. In Florida, usually the Buyer's attorney or the Seller's attorney (depending upon the local practices of the county where the property is located) will act as an agent of the title insurance company and the settlement agent.
After the closing is concluded, the attorneys must satisfy certain additional conditions, such as forwarding appropriate documents for filing. Although the Buyer is given possession of the property on the date of closing, and ownership of the property begins on that date, all the paperwork is usually not completed until a few weeks after closing.
If you would like more information, or to schedule a consultation, please contact us.