FYI: Contracts and Real Estate Law

Did you know that very often controversies that result in litigation involving commercial or real estate transactions could have been avoided by a comprehensive, well drafted agreement at the inception or early stages of a business relationship or commercial or real estate transaction?

If the parties have reached on oral understanding of the terms of the transaction or business relationship, I recommend that my client prepare a summary of the important terms that have been agreed upon.

My many years of experience in negotiating, reviewing, and drafting various types of contracts enables me to include legally enforceable language in the commercial or real estate agreement, reflecting the parties’ understandings. It is my sincere belief that the extra care and attention that I devote to negotiating and drafting commercial and real estate agreements often saves my client the substantial expense and uncertainty of unnecessary litigation.

The purchase or sale of a house, condominium, co-op apartment, land or commercial real estate may sound simple, but there are a myriad of things that can interfere with a smooth process from contract signing to the closing of title. Experienced real estate attorneys are usually able to overcome obstacles that may arise in the transaction.

Anticipating potential issues, rather than simply hoping that problems do not arise, may differentiate the professional real estate attorney from the bargain priced high volume real estate firm. Furthermore, potential problems can often be avoided if the underlying issues are properly addressed in the contract of sale.

Real Estate Contract of Sale
Once you have agreed upon the price for the home you are buying or selling, the next step is usually to enter into a formal contract of sale.

Some real estate brokers or clients prefer to have a binder signed before entering into a formal contract. I do not recommend that my client sign a binder, because there is substantial uncertainty as to whether a binder will be legally enforceable. If a dispute arises regarding a binder, substantial delay and possible litigation may result.

There are many extremely important legal and financial issues that should be addressed in the contract. It is my firm belief that negotiating and drafting the contract of sale is the most important aspect of the legal services provided by the attorney, because the contract will serve as the blueprint for the entire transaction. Furthermore, if something unexpected occurs, your legal rights will usually be determined by the terms of the contract.

Ambiguous contract terms should be avoided, since that may lead to litigation to determine the intent of the parties and their legal rights.

The following are a few examples of issues that I believe should be included in a real estate contract of sale:
•Under what circumstances can the purchaser cancel the contract, and obtain a refund of the down payment?
•What are the Purchaser’s and Seller’s legal rights and remedies if the Seller can’t deliver good title?
•What are the Purchaser’s and Seller’s legal rights and remedies if the Seller doesn’t have the required Certificate of Occupancy?
•What are the Purchaser’s and Seller’s legal rights and remedies if the Seller is unable to deliver possession (vacate the premises) on the agreed closing date or prior to the expiration of the Purchaser’s mortgage loan commitment?
•What are the Purchaser’s and Seller’s legal rights and remedies if the plumbing, heating, electrical system, air conditioning, or appliances are not working at the time of closing?
•What are the Purchaser’s and Seller’s legal rights and remedies if the Seller needs to close the transaction in order to obtain the money required to close title on his or her new home, but the Seller needs some time after the closing in order to move? This will require the Purchaser to pay the entire balance of the purchase price at the closing of title, although the Purchaser will not be given possession of the property until several days later. The contract should specifically state the monetary compensation that the Purchaser will receive for the delay in the transfer of possession. Adequate provisions should also be included in the contract of sale, in order to insure that the Seller will move out promptly after the closing of title, and deliver possession of the property to the Purchaser. In addition, provisions should be included in the contract, in order to compensate the Purchaser, in the event that the condition of the premises upon transfer of possession, is no longer as represented in the contract of sale.
•What are the Purchaser’s and Seller’s legal rights and remedies if the Purchaser is unable to secure a mortgage loan commitment within the time allotted in the contract of sale?
•What are the Purchaser’s and Seller’s legal rights and remedies if the Purchaser’s loan commitment is for an amount less than the amount applied for?
•What are the Purchaser’s and Seller’s legal rights and remedies if the Purchaser unnecessarily delays the progress of the transaction, which causes the seller to incur substantial additional expense? (This is especially significant if the seller has already moved from the premises, and is therefore paying the expenses on two residences simultaneously.)

These potential problems can often be avoided or resolved if they are properly addressed in the contract of sale, and followed through by experienced real estate attorneys.

Selecting a Real Estate Lawyer
Be careful if you consult an attorney who is ready to have you sign a real estate contract without discussing the details of the deal you negotiated with the other party, or asking you questions that may reveal important issues that should be addressed in the control of sale . Also, you may want to clarify whether an attorney or a paralegal will be handling the legal aspects of your transaction.

Why does it usually take two to three months from the date the contract is signed, until the closing of title takes place?

Most real estate transactions are contingent upon the purchaser obtaining financing. Although some lenders can issue a mortgage commitment within a matter of days after receiving the completed loan application, many lenders take up to 4 weeks or more to issue a written loan commitment.

Furthermore, the loan commitment often lists conditions that must be satisfied before the bank will designate the loan as “clear to close.” Providing the requested documentation or otherwise satisfying these conditions may take some time.

For houses and condominiums, the Purchaser’s attorney will obtain a title search, including various departmental searches. The title report may identify title defects, or other issues that must be resolved.

If the Seller does not have a current survey, the Purchaser’s attorney might be able to locate a recent survey, which may be sufficient, when accompanied by a current survey inspection and survey reading. Otherwise, a surveyor will need to inspect the property and prepare a new survey.

For co-op apartments, the Purchaser’s attorney will usually obtain a “co-op search” which may identify liens or other title defects or encumbrances that need to be satisfied or otherwise resolved. The Purchaser of a co-op apartment will usually be required to submit a detailed co-op application to the co-op’s Board of Directors, together with requested financial documents, character references, etc. Thereafter, an interview of the prospective Purchaser will be conducted by the co-op’s Board of Directors. The purchase of a co-op apartment is usually contingent upon the co-op’s Board of Directors’ approval of the Purchaser. Often the Purchaser may need to wait several weeks for the coop’s Board of Directors to schedule and conduct the interview, and to advise the Purchaser of the Board’s decision.

If the Purchaser and Seller are both anxious to expedite the closing, it may be possible to shorten the time period from contract signing to closing, however sometimes delays cannot be controlled by either the Purchaser , the Seller, or their real estate lawyers.

Why Am I Paying So Much Money at the Closing?
In a typical real estate transaction, the Seller and Purchaser often have various substantial expenses. For example, you might be responsible for paying some of the following fees:

fee title insurance, mortgage title insurance, deed and mortgage recording fees, departmental searches, transfer taxes, bank fees, bank’s attorney’s fees, co-op transfer and financing fees, co-op “flip tax, “, managing agent’s fees, real estate broker’s commission, and your real estate attorney’s fee. If you are purchasing a co-op apartment or condominium from a sponsor, you will likely be paying additional fees, including some that would otherwise be payable by the seller.

In addition, adjustments are computed in order to apportion recurring charges such as real estate taxes, condominium common charges, co-op maintenance, and other fees as of the date of the closing of title, or the date of transfer of possession from the Seller to the Purchaser.

Considering the financial complexity of the real estate transaction, it is not surprising that most people do not understand every expense that is payable at the title closing. Your attorney should explain all of your expenses, and do everything possible to both verify that they are accurate, and to minimize or avoid those that can be negotiated or eliminated.

How Important Is the Closing Statement?
After the closing of title, your attorney will provide a closing statement, which should itemize and clearly explain all of your expenses, as well as the adjustments. The closing statement should be in a format that is easy to understand, so you and your income tax preparer can easily identify important financial information about your transaction. Most of the Purchaser’s and Seller’s expenses and adjustments are also contained in the Federal RESPA Statement, however many clients and income tax professionals find that document confusing and extremely difficult to understand.

Therefore, the closing statement provided by your attorney is an important document that will assist you in understanding your purchase or sale, and in calculating your tax basis in the property you purchased, or your taxable proceeds for property you sold. It is likely that your income tax preparer or accountant will refer to the closing statement in preparing your income tax return for the year of the purchase or sale, and for the year of a future sale of the property. Keep in mind that errors or omissions in the closing statement, or inaccurate or vague explanations of expenses listed in the closing statement might cost you significant money on your income tax return.

The format and completeness of the closing statement varies among attorneys. Some real estate lawyers simply fill in the blank spaces on a single page form provided by the title company. We pride ourselves on the thoroughness of our closing statement, as well as the ease in understanding all the information it contains.

Should I Select a Real Estate Attorney Based on the Lowest Fee?
We do not recommend that your paramount criteria for selecting a real estate lawyer be which lawyer charges the lowest fee. Furthermore, in our experience, the difference between the fees charged by one New York real estate attorney and another is usually no more than a few hundred dollars.

We suggest that you select a New York real estate lawyer based on either the recommendation of a trusted friend or relative, or by your impression of the real estate attorney’s competence and thoroughness, after you speak to the lawyer. Also, you might ask whether the attorney will be available to talk to you when you have questions or concerns about the real estate transaction. Consider asking the real estate attorney to show you a sample of the closing statement you will receive after the closing of title. The difference between our closing statement and some other New York real estate attorneys’ closing statements may surprise you.

Of course, paying more does not guarantee better legal representation. However, the converse might be true. If a real estate lawyer quotes a legal fee so low that he or she will be unable to devote the time needed to provide quality representation, or to deal with an unexpected issue that may arise, who will suffer? When you consider all the expenses that a Purchaser or Seller typically pays in a real estate transaction, the difference of a few hundred dollars between the high volume real estate “mill” and our law firm is insignificant.

Your selection of the best lawyer to represent you may well be your wisest decision. Most people long remember the “bargain” that ultimately became the most expensive and most aggravating experience.

In our experience, when prospective clients contact our firm to help them after they have already paid another real estate lawyer, who will not or cannot help them, we have usually found that they were represented by a volume priced attorney.

The Law Offices of Michael W. Goldstein provides high quality legal services and personal attention to each client. Our legal fees are extremely fair, considering the level of professional service we provide. However, for those clients who will select a lawyer based solely on the lowest fee charged, our firm will probably not be your first choice.

Our Firm serves its clients with a wide spectrum of legal services for business and personal legal matters. For more information about Michael W. Goldstein’s legal experience and areas of practice, see our Attorney Profile and Our Firm pages.

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To have your case or legal matter reviewed, we invite you to complete one of our Questionnaires, or click Contact Us to send an email. You may also call Michael W. Goldstein to discuss your real estate transaction, real estate litigation or other legal matter by telephone, or to schedule a consultation at our office.

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