The Residential Transaction Step by Step
Part 1: The Offer & The Contract
- The prospective Buyer makes an offer, the offer is accepted by the Seller. Buyer is excited to get the new home. Seller is excited to move on. These are happy days. So what comes next?
- The Buyer may elect to have a home inspection performed on the property. Some choose to do so before hiring an attorney or before the hired attorney begins contract review and negotiations of terms. Along with the engineering or home inspection other inspections that may be performed are, but not limited to inspections for radon, asbestos, lead, termites, and bedbugs. While an initial home inspection maybe done before the deal is officially “under contract,” most of these others inspections are negotiated for in the terms of the contract with stated and agreed to consequences in the event of a failed result.
- Based on the outcome of inspections, buyers may modify their offer or ask for closing cost credits if any defects are found. The consequence of a failed termite inspection could be a credit to seller at the closing table, or an agreement that the buyer shall have the home treated and provide a termite warranty to the buyer from the service company.
- The Seller’s attorney will provide a Contract of Sale (CoS) and Seller’s Rider to the Buyer’s attorney. The Buyer’s attorney will review the Cos and Seller’s Rider. At this point he/she will draft what are known as change requests and send submit his/her change requests to the Seller’s attorney along with the Buyer’s Rider. Each side has their own Rider, a separate but included document outlining specific contractual items that are not covered in the pre-printed form contract that is used industry-wide.
- When full agreement is reach on the CoS and Riders, the Buyer’s attorney will meet with his client(s) to have the client(s) sign the CoS and Riders. At this point the Buyer will issue a deposit check, usually in the amount of 10% of the agreed to purchase price of the property. The Buyer’s attorney will then provide the signed CoS, Riders, and Buyer’s deposit-check to the Seller’s attorney. The property is now “In-Contract” and the next steps need to be taken.
- In addition to the aforementioned inspections, homebuyers in New York State may also need to obtain certification or documentation of:
- Buried oil tanks: Before homes in New York (and elsewhere on the East Coast) were heated with natural gas, they were heated with heating oil. The oil and the buried tanks that once stored the oil are environmental hazards. They must be decommissioned through a process subject to inspection and approval by the appropriate regulatory body in New York. The location of a buried oil tank can be problematic. Think if you will for a moment, what it would take to remove an oil tank buried under a garage floor or under a part of the house itself. Such a daunting task may incur significant costs and should be taken into account in any transaction. While proper decommissioning is not a requirement to complete the transaction, it’s does present significant risk to a Buyer. As such a Buyer’s attorney will usually request language in the Buyer’s Rider to mitigate this issue if found.
- Well testing: Homes that have a buried water well may need to comply with local municipal laws that require testing of water wells to ensure environmental safety.
- Flood search: This is a survey of the property that assesses its risk of flood damage. This may or may not be requested by the Home Insurer that will be placing the Home Insurance policy. If requested, it normally wont be until later in the transaction process.
- Certificate of Occupancy (CoO): This is a document that proves the property can be occupied and lived in, and that it complies with zoning and building code. In many instances, if the Buyer’s attorney has it or can easily get it from either the Buildings Department or from the client himself/herself, the Seller’s attorney will submit the CoO with the Contract of Sale and Seller’s Rider.
Part 2a: The Mortgage – runs parallel with Part 2b: The Title Report
Get started early and remain diligent – this is the part of the process that is the most time consuming and it is usually the culprit for delays in getting the deal to the closing table.
- The buyer submits a loan application to their lender, either directly or through a mortgage broker or mortgage bank, along with the fully executed Contract of Sale and Riders.
- The lender will provide the Buyer with a “Good Faith Estimate.”. The GFE is a breakdown of estimated closing costs. The final costs will most likely change from this estimate, although the deviation is usually minimal.
- At the request of their lender, the buyer sends a series of personal financial disclosures, runs personal credit, etc.
- Based on the lenders findings (positive), the lender will render its approval decision by issuing a loan commitment letter that states its willingness to fund the mortgage provided certain conditions are met. This is known as a Conditional Mortgage Commitment. The Buyer then needs to satisfy those conditions in order to move forward with his/her loan.
- At this point, the contractual mortgage contingency is removed.
- The lender will want ancillary but required documents that should be put in placed and performed in parallel with the mortgage process: Home Owners Insurance and the Title Report.
Part 2b: The Title Report
Property needs to be able to be conveyed or transferred to the Buyer from the Seller, free and clear of title defects with no liens, encumbrances, etc. This is known as clean and marketable title. The property, the sellers and the buyers all have “history” and this history needs to be known. The Title Report provides two ultimate objectives, an Owner’s Title Policy, also known as a Fee Policy, for the Owner, and a Lender’s Policy, also known as a Loan Policy, for the Lender. These Title insurance policies are forms of indemnity insurance that insures against financial loss from defects in title to the property and from the invalidity or unenforceability of mortgage loans.
- The Buyer’s attorney will have a title search performed along with name, bankruptcy and patriot searches for the Buyers and Sellers along as well as any municipal/locality searches.
- When the title company receives the results of the searches it will issue a Title Report with the findings from the searches outlining any title defects that render the title un-clean and un-marketable. This is standard and par for the course.
- The Title company will then provide the Title Report to the Buyer’s attorney, who in turn, will provide the Title Report to the Seller’s attorney.
- The two attorneys will work together on any issues pertaining to their respective side of the transaction. The Buyer’s attorney will clear title defects regarding his clients as Buyers for past debts, judgments, etc. The Seller’s attorney will clear title defects regarding his client as Sellers and any liens or encumbrances such as an open mortgage or an open home equity line of credit (HELOC).
- When the two attorneys have addressed to the satisfaction of the title company, the title has become “clean and marketable” and the Seller can now convey the property to the Buyer free and clear of defects and debts.
Part 3: The Closing
Once the lender has issued its “Clear To Close” (CTC) and the Title company has issued its CTC, then the attorneys will coordinate with each other, their respective clients, the lender, and the title company to schedule a time and place for the “Closing”. The Closing is a process where buyers sign all documents related to their loan and the transaction itself. After all documents are signed and payments exchanged, buyers generally take possession of the keys unless a separate agreement has been reached to allow the seller stay in the property for a period after closing known as a Post-Possession Agreement.
- The Seller’s attorney will draft the new Deed to the property to be signed at the Closing by the Seller as well as any documents required for taxation and recording purposes known as the transfer documents.
- A final cash figure for what a buyer needs to bring to the closing in the form of a cashier’s check is calculated. This is based not only on a mortgage’s closing costs but factors like property taxes and utilities paid in to date by the seller.
- The two attorneys work together to agree on final adjustments which are per diem swings of monies that are to be credited to one side or the other such as property taxes, water bills, Seller’s Disclosure Credit to Buyer, and other such items.
- A final walkthrough will often be performed the day of or shortly before closing to verify the property is in the same condition it was when the process began.
- At the closing, or settlement, table, the buyer (and seller) sign all closing documents, including the Closing Disclosure known as the CD, and the final loan documents.
- The Buyer pays the remaining funds of their down payment, by Bank Check.
- The Lender’s attorney will provide payoff funds to the title company for payoff of any open mortgages as well as any other items which need to be paid off from the loan proceeds. Any remaining funds of the loan are provided to the Seller.
- Money has been exchanged, Deed signed, transfer documents signed and the deal is done. The title company will then record the transaction and deed with the appropriate municipality.
- The buyer receives the keys and, unless indicated differently in the contract, officially takes possession of the property.
And that’s a Real Estate Transaction. If you are in the market to buy a piece of property or currently have one listed for sale, don’t hesitate to contact us if you have any questions or need experienced representation for your real estate deal.
This document/post/article is not to be considered as legal advice. Content and information contained herein is subject to changes, modifications, and may contain inaccuracies or out-of-date information. As with any legal matter or other matters of importance, consultation with an attorney or professional is the best course of action.