Knowing what to expect brings peace of mind especially for what is often the largest transaction a person will undertake in a lifetime. Buyers should take all measures possible to make sure that the deal goes smoothly and to avoid any disastrous bombshells down the road.
After weeks, if not months of searching for the perfect home, negotiating the purchase price with your agent, getting the Seller to accept your offer, you now have a binding contract, right? Not quite. Even with a signed contract, both the buyer and seller have an opportunity to have their attorneys review the contract carefully. Virtually all standard real estate contracts contain “attorney approval” or “attorney review” provisions. The buyer’s attorney’s job is to review the terms of a contract to make sure the contract does not take advantage of the buyer. The attorney typically focuses on the purchase price and personal property included in the sale, the mortgage contingency clause, the inspection clause, and the clause that governs penalties for default. In addition, the attorney makes sure the various prorations (taxes, rents, association dues, etc.) are fair to the buyer. Also, the attorney insures the seller provided the required disclosures relating to the condition of the property (including the radon hazards, mold and lead, if required), home warranties, and previous home insurance claims.
Normally, a contract will also contain an inspection provision providing the buyer with the right to obtain a professional inspector (or to inspect the property themselves) to check the property for defects. Inspection clause provisions vary from contract to contract. Some allow the buyer to request repairs be made to the property, some require that repairs exceed a certain dollar amount and others merely allow the buyer to cancel the deal because the condition of the property is found to be inadequate. The buyer’s attorney will assist the buyer in negotiating with the seller’s attorney regarding repairs.
If the inspection reveals some defects or recommended repairs, the buyer should consider requesting from the seller a closing credit to cover the costs of those repairs, or request that the repairs be made before the closing date. However, the buyer may choose to walk away if the repairs are major or accept the property as is, especially if the purchase price is much under market value. During negotiations, buyers should work with their agents and attorneys to discuss these matters further and determine what route would be the most appropriate to take. (For more information on inspection negotiations, check out our previously written article titled: “Real Estate Matters: Negotiating After Home Inspections,” August 2013, http://bzlaw-firm.com/blog.html )
Keep in mind that the inspection and attorney review periods usually last for a short period of time, often five to ten days. The terms of the contract will indicate how much time is provided. Once the periods expire, no additional changes may be made, unless the parties agree to an extension of the deadlines. This request must be made prior to or on the deadline. Therefore, it is imperative that the buyer forward a copy of the accepted contract to his or her attorney as soon as possible.
Once attorney review and inspection periods expire, the buyer’s attorney will help the buyer manage the mortgage contingency. This is only for transactions where the buyer requires financing to purchase the property. If the buyer is paying cash, then no mortgage contingency is necessary. But if the buyer needs financing to cover most or some of the purchase price, then there will be a mortgage contingency deadline. This allows the buyer to lawfully cancel a transaction if s/he cannot obtain a loan that satisfies the terms of the mortgage called for by the contract.
The next undertaking is to make sure that the title to the property is clear or will be clear by the closing date. Once the seller’s attorney forwards to the buyer’s attorney a Title Commitment document, then the buyer’s attorney evaluates the document to make sure that there are no lose ends. If every item as discussed above is resolved, then the next and final step is to attend the actual closing date.
By the closing date or, at times, on the same day, the buyer’s lender will deliver a package of documents to the title company. This package is comprised of many documents, including the note and mortgage and also the closing statement which includes all of the lender fees. At closing, the buyer’s attorney will walk the buyer through all the stack of thick, often repetitive documents, stressing the important terms and protecting the buyer’s rights against the bank.
The Seller’s attorney will also forward to the title company a package of documents, including the deed to the property and the seller’s closing statement. The buyer’s attorney will analyze these documents to make sure that the buyer is purchasing (and the seller is conveying) the correct property, that all taxes and liens are paid, and that title is cleared and insured by the title company. This usually involves a review of the documents and a survey (if purchasing a condominium, a survey is usually not required) provided by the Seller.
The services of a competent, approachable and professional real estate attorney greatly reduce the likelihood of problems down the road, make the whole process easier and smoother, and more importantly creates peace of mind to buyers in this very long and complex maze of buying a home.
By: Kathy E. Bojczuk, Attorney