For most people, purchasing a home or other real estate is usually the largest purchase of their life. Although many real estate transactions may go smoothly, if something were to go wrong, it could cost you a fortune.
If you are already in the process of buying a property, you probably already have several parties involved such as a real estate agent, a lender and possibly a title company. Do you also need an attorney? The first thing you should think about is your own comfort level. If you’re looking at all the documents, or hearing varying information from the people involved, and you’re coming up with question after question – then talk to someone without a vested interest in the transaction.
The truth is, as with any real estate transaction, several of the players have a financial motivation to get the deal closed. When you are investing a large amount of money in a house or other real estate, having an experienced attorney on your side, looking out for you and only you, can ensure that your transaction goes as smoothly as possible and all the while protecting your legal rights.
The closing is the end of the long and sometimes arduous process of buying a house. It refers to the day you close the deal on the real estate and any mortgage to buy that real estate. Essentially it's the final transfer of money and keys. When you walk out of the closing you own a home!
Depending on whether you are obtaining a mortgage for the purchase, or perhaps you’ve saved up enough to buy a home outright with cash, there may or may not be a huge loan package that you will need to review and sign at the closing. When there is a loan package, you can estimate the closing taking a little longer. You will also be exchanging and signing other documents (i.e. – ALTA, HUD-1), They won’t just hand you the keys!
Either way – cash closing or closing with financing – the typical closing takes place at a title company which acts as the escrow agent. The title company holds onto the deed from the seller until the purchase price has been paid. Further, in most transactions, the purchase price must be wired in from the purchaser’s bank or lender, and the title company facilitates the process.
Title insurance is protection against loss arising from problems connected to the title to your property. Before you purchased your home, it may have gone through several ownership changes, and the land on which it stands went through many more. There may be a weak link at any point in that chain that could emerge to cause trouble. For example, someone along the way may have forged a signature in transferring title. Or there may be unpaid real estate taxes or other liens. Title insurance covers the insured party for any claims and legal fees that arise out of such problems.
Everything is ultimately negotiable and each transaction is different. But in the typical transaction, both the buyer and seller pay a portion of the closing costs.
Buyers typically pay the following closing costs: fees charged for obtaining a mortgage; inspection fees; homeowner's insurance ; transfer taxes if there are any (although the seller may pay these or they may be shared 50-50 between buyer and seller); escrow fees (varies depending on the location); and attorney's fees (if and where attorneys are involved in the transaction).
Sellers' closing costs typically include: loan payoff fees; the real estate commission (in some cases, a portion of this may be paid by the buyer); title insurance; termite repairs (although may be negotiable); cash payments in lieu of repairs to the property; all or part of transfer taxes and escrow fees, if there are any; attorney's fees where applicable; and other local fees or fees negotiated during the transaction.
Most buyers perform home inspections shortly after they sign the real estate contract – and have the option (within a certain time-frame) to back out of the deal if they find the results unsatisfactory. The inspector usually finds items that need to be fixed. The buyer or their attorney may then ask that these items be fixed, or that a credit be given at closing. This request from the buyer is a part of the negotiation process during the attorney review and inspection period, and the requests are completely negotiable. If the items to be fixed are small, it’s probably easier to get them fixed by a professional (keeping a receipt for the closing). If the seller does not want to make repairs, the seller has the option of refusing to make the repair, or of giving a credit at closing – that is, basically, that a certain amount (equal to the actual cost of repairs) is taken from the seller’s proceeds at closing and given to the buyer. All reasonable requests for repairs made by the buyer should be negotiated; the alternative is to let the buyer walk away from the deal with their earnest money refunded.
In this economy, the number of short sale transactions is increasing all the time. People just can’t keep up with their mortgages – and their property has decreased significantly in value. So, property owners often get to the point where they need to sell their property for less than the balance owing on their mortgage. A short sale can be an underwater home, an apartment building or even vacant land. If there is a mortgage balance that is greater than the market value of the home, that property is a short sale.
Keep in mind though – these aren’t automatic. A bank must agree to grant a short sale. They are under no obligation to do so. They will only grant a short sale if they feel it is in their best interest. In other words, if the bank will make more money through the short sale than a foreclosure, it is in their best interest. It is estimated that banks might save 25% to 30% on foreclosure costs to grant a short sale over a foreclosure, but some investor guidelines make it more profitable for the bank to foreclose.
Also keep in mind – this will impact your credit. When you pay less than originally agreed on any loan, the impact on your credit report almost always will be negative. It would be rare for a lender to report the mortgage as “paid” and forgive the remaining amount. In that instance, assuming all your payments had been made on time, there would be no negative impact on your credit scores. In the vast majority of instances, however, a short sale is reported as “settled,” which means that you reached an agreement to repay only a portion of the total amount. The remainder is written off as a loss by the creditor.
Foreclosure and “deed in lieu” of foreclosure are other options for people who are underwater with their mortgages, both of which would also negatively impact their credit scores.
Buyers and sellers are technically committed once they sign an agreement for the purchase or sale of real estate. However, generally with every contract there is an attorney review period, inspection period, and if the buyer is receiving financing – a mortgage contingency period. If the parties propose changes to the contract during the review period, and no agreement is reached within a specified time, either party can back out. Further, if the buyer inspects the property and decides the condition is unacceptable, they may back out. Finally – if the buyer doesn’t obtain financing on the terms contained in any contractual mortgage contingency, within the time specified, they may back out. Keep in mind – these “review periods” are generally short and the time begins to run as soon as the seller accepts your offer by signing the contract. So make sure you get your contract to an attorney to review immediately!
Your first clue that a home inspection is important is that it can be used as a contingency in your purchase offer. This contingency provides that if significant defects are revealed by a home inspection, you can back out of the deal within a certain timeframe. Make sure you are within that contingency period and get your inspection done! The potential problems a home can have are serious enough that they allow you to walk away from the contract. I’ve never met a realtor who would tell you to not do an inspection. And they are right to be insistent. The inspection can reveal problems that you may be able to get the current owners to fix before you move in, saving you time and money. Or the inspection may reveal problems that are so expensive that you no longer want to do the deal. Also, if you are a first-time homebuyer, an inspection can give you a crash course in home maintenance and a checklist of items that need attention to make your home as safe and sound as possible.
It seems that the most common complaint today with short sales, is why does the bank take so long? This question is heard over and over and both sellers and buyers are anxiously asking it. It’s the million-dollar question. But there’s not one firm answer. Some short sales take 60 days. Some take 30. Some can turn around in 24 hours. Other lenders are so swamped with short sale submissions that its employees can't respond in timely manner. What once took two months can easily take four months. It really depends on the lender and what system they have in place to respond to short sales.
To understand, the short sale process, from submission to the lender to the time of short sale approval, might go as follows:
- Submission of offer and complete short sale package from the seller.
- Bank acknowledges receipt -- 10 to 30 days.
- Bank orders a BPO or appraisal -- 30 to 60 days.
- File is reviewed -- 30 to 60 days.
- Negotiator is assigned -- 30 to 60 days.
- Level II negotiator may be assigned -- 30 to 90 days.
- File is approved or rejected -- 30 to 120 days.
If rejection or approval takes longer than 120 days, it's possible that a piece of the cog is not working. Perhaps the listing agent isn’t staying on top of calling the bank. Calling the bank can often mean waiting on hold anywhere from 10 minutes to an hour or longer. Or, a lengthy short sale period can also mean the bank has internal problems, not enough staff or has lost the file a few times, causing the listing agent to have to resend the package over and over. It can also mean that the appraisal is substantially higher than your offer, and the listing agent is building a case for a new appraiser.
Unfortunately, you can't always avoid problems on a short sale. Patience is key – along with an experienced realtor and attorney. Threatening to walk away isn’t going to make an impact on the bank. If you truly want the home, stick it out.
So, if this is something you, as a seller or buyer, are getting involved in – make sure you’re working with both a realtor and attorney who understand the short sale process. It will make a world of difference to have people who understand the process guiding you through it.
If you’re underwater on your mortgage, one option to consider is a deed-in-lieu of foreclosure. This is where you give your lender the deed to your property voluntarily in exchange for your loan being canceled. The lender promises not to foreclose or to terminate any foreclosure that is pending, and you vacate the property and give it to them voluntarily. Keep in mind, there’s no guarantee that the lender will waive any deficiency balance once they sell it. So work with an attorney experienced in these negotiations to make sure you understand what you’re agreeing to.
Also, be aware that lenders are less likely to consider a deed-in-lieu if a property has other encumbrances on it, if other foreclosure alternatives are available (loan modification, short sale), or if a homeowner has not had their home on the market for period of three months in an attempt to sell it or do a short sale.