Reference Guide for Real Estate Closings
GENERAL INFORMATION FOR REAL ESTATE CLOSINGS
While many of the provisions herein deal with purchases and may not be applicable to your particular transaction, we have created this schedule in response to frequently asked questions we have had from our clients as a helpful reference guide.
The attorney fee we quote for your transaction is in anticipation of a standard real estate closing. That fee does not contemplate unanticipated services, such as involvement in negotiations; drafting of documents (i.e. early or post-closing occupancy agreements); clarification and resolution of title issues; or, post-closing litigation. Since these events are not common, we do reserve the right to charge an additional fee for such services which will be discussed with you in advance. Add-ons to the standard fee include:
- Document preparation on sale files
- Preparation of early occupancy or post-closing agreements
- Preparation of contract
- Federal Express overnight mailing fees
- Deed transfer (recording fees are extra)
- Power of Attorney (recording fees are extra)
- Cancelled transaction
- Survey and abstract of title re-date fees (if you are a seller)
If you are purchasing a property, we anticipate that our office will be obtaining the title insurance for your lender. We may also represent your lender in the closing. The work performed by our office for each of these services would result in an additional fee to our office.
SCOPE OF WORK:
It is important that you understand all the terms and conditions of the purchase agreement and be sure that all special circumstances are set forth therein. Issues regarding whether you have an appropriate down payment, need to close another transaction or have any other special circumstances, should all be set forth in the contract. When our office performs an attorney approval of the contract of sale, we operate under the assumption that all necessary provisions for the transaction are set forth in the contract and that you clearly understand your obligations.
Please use caution when locking in your interest rate. It is essential that the lock-in date exceed the actual closing date to prevent the rate from expiring prior to closing. Our rule of thumb is do not lock-in until all contingencies are removed and allow at least ten (10) days after the closing date set forth in the contract.
You must carefully comply with your lender's particular requirements whether set forth in the commitment letter or otherwise. You must review the commitment letter carefully and provide all the documentation required.
As part of our services we will, at your request, provide an attorney approval as to the form of the contract, assemble the closing documents and prepare and oversee the closing. We will then forward your title documents to you. In the case of a purchase, your search (abstract of title) and deed may take a few months to return because of delays at the title company and at the Clerk's Office. You should also note that when you receive your search it is possible that the most recent mortgage will not be marked as discharged since it is common practice in Western New York that real estate transactions close on a guarantee that the discharge will be obtained and filed.
SEPTIC SYSTEMS, WELLS, SUMP PUMPS AND WATER/SEWER CHECK VALVES:
If you are a seller and have a septic system and/or well, it is your responsibility to contact the County Health Department for an inspection and obtain the appropriate approvals. We can assist you in making this contact, but it is typically the seller's responsibility to obtain the application, pay any fees associated with the testing, as well as be available for any test. If a closing is going to occur during the winter months which would not allow the Health Department to perform a dye test prior to closing, or if the property is vacant for more than 30 days, an escrow will be required to held by the lender or seller's attorney until such an approval is provided and/or in the case of Erie County property, a waiver will be required to be obtained at the seller's cost.
If the property is located within a municipality that requires a working sump pump at the time of closing, then again it is the responsibility of the seller to contact the municipality to obtain the appropriate application and pay the fees involved in this test. Once the inspection is done and approved, a certificate of compliance will be issued. Also, if there is no sump pump in the property and the municipality requires them, it will be necessary for the seller to install one at the seller's cost. Furthermore, the municipality may also require the hardwiring of the smoke detectors in the property.
With respect to water and sewer hookups, if your property is located in Niagara County, it is the seller's responsibility to obtain, at their cost, a letter from the municipality confirming that the property has the appropriate water check value and proper sewer hookups.
Any of the above processes can be explained in more detail by our office or the municipality itself.
All checks utilized for closing must be in readily available funds (i.e. certified funds or bank drafts). The other party will not accept personal checks.
For sellers, please note that it normally takes 2-3 business days after the closing before your net sale proceeds will be available to you. It is our firm's policy to issue your sale proceeds via an attorney trust check. If you require certified funds or funds to be wired into an account, we can accommodate your request. If you are buying and selling, every attempt will be made for the funds to be transferred from the sale directly to the purchase.
The closing date set forth in the contract is a target date; however, the actual closing is determined by numerous factors, including the title status and lender requirements. Unfortunately, we cannot always guarantee which day the closing will occur on and in many instances; the bank will not make the closing figures available until the day before closing. In some circumstances, you may receive your closing figures the day of your closing. You should contact our office prior to making any commitment to movers or other sellers/purchasers if you are involved in a simultaneous purchase/sale.
When purchasing, you will need to obtain fire and liability insurance pursuant to the guidelines contained in your written mortgage commitment. You will need to provide the original binder (a sheet evidencing insurance), as well as a paid receipt (for the entire year's premium) at closing. Most times the lender will require a copy of the insurance binder before permitting the mortgage closing to even be scheduled so we typically need a copy faxed to our office.
Whether you are buying or selling it is necessary that you contact the various utility companies prior to closing and make arrangements to transfer the utilities either into or out of your name. You may wish to coordinate this through the realtor to insure the utilities are not actually shut off. This should include, but is not limited to, the gas company, electric company, phone company, cable company and water department. As a seller, you are responsible for the final payment of all utilities, including water. If a water bill is not paid, it becomes a lien on the property, which is not the case with any other utility. The purchaser will inspect the property just prior to the closing and all utilities must be available for the inspection.
If you are a buyer, you should make arrangements through the realtor to obtain the keys, security codes, garage door openers, etc. The keys are generally made available at the closing. If you are a seller, please provide our office with at least one key prior to closing and leave the remaining keys in the house along with any garage door openers and warranty information.
If you are a buyer, it will be necessary for you to make arrangements through the realtor (or with the seller directly if there is no realtor) for a final inspection of the property at least a day or two prior to the closing. These rarely result in problems; however, if issues arise, it is imperative that we be notified immediately and that any issues are addressed PRIOR to closing.
Generally real estate transactions close at the Clerk's Office in the County in which the property is located. When purchasing, occasionally the bank's attorneys will require you to go to their office to close the mortgage prior to closing the title at the Clerk's Office. This can result in a substantial increase in time associated with the closing; however, in most cases the closing occurs at the County Clerk's Office. If we represent both the buyer and the lender, we offer the convenience of closing in one of our offices rather than at the Clerk's Office. Also, it is not necessary for the seller to actually attend the closing, since we generally have the transfer documents signed prior to the actual closing date.
REAL PROPERTY TAXES:
If you are selling, it is your responsibility to pay your real estate taxes on a timely basis or check to make sure that your lender pays them. This is particularly important if your closing occurs during a period when a tax payment is required. The problem that occasionally arises is that neither the purchaser, nor the purchaser's lender, receive a new bill and do not process the payment accordingly. It is your responsibility to insure that this does not occur. Also, in regard to real estate taxes, it is important to note that certain exemptions, including the STAR program, which is available to all homeowners, may apply to your parcel. You must contact the assessor to determine when an application must be made for these exemptions, since there is an annual cutoff date, which may result in the loss of the exemption for an entire year.
If you are purchasing property that is currently subject to an exemption, such as Senior Citizen or Veterans, you should be aware that the taxing authorities may charge back the value of that exemption from the date of closing to the end of the tax year.
MORTGAGE PAYOFFS INCLUDING HOME EQUITIES AND LINES OF CREDIT:
For clarification purposes, a home equity loan or line of credit is generally a lien on the property and will be required to be paid off at the time of closing, along with any first mortgage lien. In the event there are one or more mortgages on your property, as part of our services we will send out to the existing mortgage company the payment required to extinguish the debt.
If a home equity or line of credit is being paid off, it will be necessary for you to sign a form authorizing the account to be "closed," since without that authorization the lender will allow the account to remain at zero, but not discharged. Please note, however, that due to recent increases in lender privacy policies, we are frequently unable to make follow up inquiries on these accounts.
Also, although we request that the "Discharge of Mortgage" be sent to this office for recording in the County Clerk's Office, the lender sometimes will send this directly to you. For these reasons, we strongly suggest that you contact your lender two or three weeks after closing and confirm with them that they have been paid in full and that the discharge of mortgage will be sent to our office (or that the lender itself will be recording it). If your lender says anything to the contrary, please contact us. Your credit history or the title to the property may be at risk. If you do receive the original Discharge of mortgage, please forward it to this office, since typically we collect funds at closing to record it at the Clerk's Office.
When purchasing, we recommend that you obtain an owner's title insurance policy so that you have coverage protecting your ownership interest in the property. The title insurance you pay for through your lender only covers the lender's interest in the property. Title insurance is based on a percentage of the purchase price. An owner's policy purchased at the same time that you purchase the property is much less expensive than if purchased at a later date. More information about the benefits of title insurance is discussed later on.
Certain items of title we will simply forward on to you and discuss in more detail as needed, such as if your property has fences, there is a chance that the fence will be located somewhat off of the property line. Furthermore, if you are located in a subdivision, most likely you will be subject to building restrictions which may impact on various items, such as the construction of above-ground pools, the parking of certain vehicles in your driveway and the use of fences, to name a few. These restrictions are generally more controlling in condominium and townhouse associations. Additionally, in certain parts of the Town of Amherst and Clarence, your home may be located above an abandoned gypsum mine. If you are buying property located in rural areas, your property may be subject to certain rights-of-way and oil and gas leases. You should verify from the seller if these conditions exist and whether they are receiving any rents and royalties from any oil and gas leases. For the most part, absent hearing from you, we will move forward and close your transaction in spite of the existence of the items set forth herein.
CONSTRUCTION/BUILDING PERMITS/VACANT LOTS:
We review documentation regarding ownership and title to the property, such as deeds, mortgages and general agreements, which are on record at the County Clerk's Office. We do not review any documentation pertaining to the building or land, or any village/town filings, so if there is a swimming pool, garage, shed, or perhaps some addition made to the home itself, please call the local building department to make sure the appropriate permits and inspections were obtained by your seller. This caution applies no matter when the construction may have occurred. We also do not review any purported utility, sewer, etc., hookups or availability, so, despite what the seller may allege in a contract or listing agreement, it is your responsibility, if you are purchasing a vacant lot, to make sure you will have the appropriate access to all the required utilities, etc.
CLOSING COST ESTIMATE:
Generally, when you are purchasing a property, your realtor or lender will provide you with a good faith estimate of your closing costs. Please be aware that this office is not involved in that process and cannot take responsibility if these costs are inaccurate. We have found on most occasions when we provide the closing figures to a purchaser that they are generally lower than the estimate; however, the realtor and/or the lender may not have accounted for a property tax that would become due at the time of your closing which could cause these figures to be higher than anticipated.
If you are a purchaser, due to prorations for taxes, interest, homeowner's association fees, rent, security deposits and the like, the adjusted purchase price and the amount available from your lender will change on a daily basis. Therefore, it is usually impossible to determine the exact amount of funds you will need to provide at closing until the day prior to the closing.
SMOKE DETECTORS/CARBON MONOXIDE DETECTOR:
If you are selling a residential parcel, you need to have a working smoke detector and a working carbon monoxide detector in the property prior to closing. If you do not have these, you should immediately purchase and install the same without further delay.
It has come to our attention through media reports and other sources that certain homes in certain parts of the Town of Amherst, New York have been damaged by differential settlement. We strongly recommend that when purchasing any homes in northern or east Amherst that you have the same reviewed by a structural engineer with knowledge of these conditions. Our office is not in a position to provide information as to the details of the subsidence issue. However, in order to protect our clients, we recommend that purchasers of existing homes or newly built homes retain an expert familiar with this issue to insure that the same is not a problem. Likewise, we are advising sellers of properties in those areas to fully disclose all information they have in regard to the same to avoid any questions at a future date.
Both New York State and the Federal Government have the power to declare certain areas of real property "wetlands" and prohibit building in or near these areas. Many of these areas have already been mapped and these maps are usually available at the town building department. However, there are many unmapped areas, and the State or Federal Government can declare an area a wetland at any time. Some wetlands are evident only at certain times of year. If you plan to build on property that you are buying, please talk to your local building department first. Most of the inspectors are willing to visit the property with you, to look for signs of wetlands.
Note that this is not a "guarantee" that the property is free from wetlands and there have been instances where a town has issued a building permit; and then cancelled it when wetlands later appeared.
Also, in 2003 the New York State Department of Taxation and Finance changed the form TP-584 (a form filed with the Deed) and added a new form, IT-2663. The changes apply to the sale of property by non-residents and require the completion of the forms and possibly the pre-payment of taxes. There are three exemptions to the expended requirements (again, which only apply to non-residents). If you are a non-resident of New York State, it is imperative that you contact the attorney/paralegal handling your file. You may face additional costs and potential delays because of these requirements.
POST-CLOSING ISSUES - WHEN TO SEEK COUNSEL:
In some situations after closing, you may discover structural or mechanical problems with your home. Often, if a home repair expert is consulted, they may speculate that the problem has existed for some time and that the prior owner of the home must have known about the problem or that the real estate agent or home inspector should have discovered it prior to closing. This may or may not be true.
Case law precedent in New York State places the onus on the buyer to complete their due diligence inspections prior to closing. Once a buyer closes on a property their contractual remedies merge with the deed. In other words, you have purchased the property "as is." Absent fraud or misrepresentation, the seller is generally not liable for any defective conditions that surface after closing. Therefore, it is very important for the buyer to conduct a thorough inspection of the home during the home inspection period and to include any additional tests they feel necessary.
If there is significant evidence that the seller knew of the defective conditions and hid them or misrepresented them, you may want to consult a lawyer to discuss pursuing litigation. Timely pursuit of any potential litigation matter is mandatory. Procedurally, a lawsuit cannot be maintained if it is commenced after the time allowed by statutes of limitation. Furthermore, litigation can be costly both financially and emotionally. This should be considered along with the likelihood of "winning" when determining whether or not to move forward with any lawsuit.
In the event post-closing litigation becomes necessary, we will require you to execute a written retainer agreement. You will be responsible for all costs and disbursements relative to the litigation as well as attorney fees at hourly rates as set by this office.
TITLE EXAMINATION VERSUS TITLE INSURANCE:
As part of our services to you, HoganWillig will examine the history of ownership to the property you are buying to make sure that: (1) your seller holds all legal title to the property; and (2) you receive all of the seller's rights. We will make sure that there are no liens, mortgages or other interests which you might later have to pay. We will make sure that any easements or rights of way held by other parties do not create an undue burden on your property.
Our examination will be based on the abstract of title, survey print and tax records supplied to us by the seller's attorney. Occasionally, if something appears problematic, we may obtain copies of deeds, mortgages and agreements for our review. However, we do not look at the property itself, we do not review original documents or interview past owners. Furthermore, the abstract of title, which is the primary basis of our review, is solely a compilation of brief recitations of facts contained in documents pertaining to the property. It does not contain the documents themselves and is thus subject to mistakes made by the person paraphrasing the contents of the documents. Because of these and other factors we suggest that you purchase an owner's title insurance policy to protect your investment in your property.
There are two types of title insurance. Your lender requires a mortgage title insurance policy (which you pay for as part of your closing costs). This policy protects only the lender's investment. An owner's title insurance policy protects your investment and interests as owner of the property. Utilizing general principles of insurance, it protects you from pitfalls not discoverable by us. The American Bar Association cites fifty (50) potential disasters which are covered by fee insurance, for example:
- Deeds by persons of unsound mind or by minors
- Undisclosed heirs
- Mistakes in recording legal documents
- Discovery of a later Will after probate of a first Will
- A deed or mortgage procured under duress of fraud
If any of these matters come to light after closing while you own the property, your ownership rights and/or the value of your property would be significantly diminished. You might also be called upon to defend yourself in a costly lawsuit or to institute a lawsuit against someone claiming an interest in your property. An owner's title insurance policy would pay the legal costs involved in resolving all of these problems. For example, if at some point you become involved in a lawsuit with your neighbor over the boundary line between your properties, the cost of litigation would be paid by the policy.
The cost of a mortgage insurance policy is roughly 0.75% of the loan amount. This percentage decreases as the amount borrowed increases. The premium for a $50,000 loan is $398 (0.79%); the premium for an $80,000 loan is $521 (0.65%). Your mortgage insurance premium should appear on the "Good Faith Estimate" you received from your lender. Your mortgage premium will be reduced by 70% if you obtain owner's title insurance at the same time. Fee insurance premiums also vary by the amount purchased. For example a $50,000 policy is $404 (0.81%); and a $100,000 policy is $614 (0.61%). For a $100,000 home with a mortgage of $80,000 your total cost for a fee and mortgage policy would be $770. This is only $249 more than the cost of a mortgage policy alone. This is a one-time premium and the policy will protect your interests and investment for as long as you own the property.
Again, as your attorneys we suggest that you purchase an owner's title insurance policy. If you have any questions, please call 716-636-7600 and ask to speak with one of our real estate attorneys.