Preparation is the key for a successful home purchase. Below is some helpful information on specific tasks our attorneys undertake to facilitate the process, as well as terms that you will encounter to take some of the mystery out of your purchase. For further explanation of these terms or additional information, Contact us.

The Function of a Real Estate Attorney

The attorney that you choose to represent you for the negotiation of the purchase of your home is one of the most important decisions you will make in the Home Buying Process. While your real estate salesperson or broker will work with you to make a decision on which home may satisfy your particular needs, your attorney is the only party who will be working solely for your benefit during the Home Buying Process.

In representing a prospective Purchaser, an attorney performs the following functions:

	Reviews and negotiates the Contract of Sale
	Oversees the process of your home purchase, ie., complying with the terms and conditions of the contract
	Reviews the Abstract of Title
	Coordinates the closing of title and the mortgage loan with your lender

In theory, an attorney should be retained BEFORE an offer is made to purchase a home. As a practical matter though, most purchasers looking at homes are concerned with the non-legal aspects of selecting a home, such as location, size, type and amenities, and defer the selection of an attorney until after a home is selected and a basic agreement is reached on the price and other general terms.

IF YOU CHOOSE TO FOLLOW THIS TRADITIONAL APPROACH AND HAVE AN OFFER ACCEPTED, DO NOT ATTEMPT TO GO ANY FURTHER WITHOUT CONSULTING AN ATTORNEY.

THE HOME BUYING PROCESS

Before you take the plunge, you should be aware of what you will be encountering during the coming months.

The Binder - When you are ready to tender an offer to purchase a home, your sales agent or broker may ask you to execute a Binder Agreement to present to the Seller.  A Binder is a written offer to purchase a home at a given price with additional provisions regarding mortgage financing and personal property to be included in the sale. It is usually accompanied by a nominal earnest money deposit  (between $100.00 and $500.00) to show the serious nature of your offer.

Once accepted by the Seller, a Binder has been interpreted to be a formal agreement.  A Purchaser can risk the loss of their earnest money deposit if provisions are not made for a “change of heart.”

A Binder should be used by a Purchaser only as “an agreement to agree.” It should always be subject to review by an attorney and the execution of a formal contract containing the basic terms of the offer. In addition, if the offer is being made on an existing home, the binder should also be subject to a satisfactory inspection of the dwelling by a licensed engineer.

The Inspection - Generally, when a purchaser purchases an existing home, it is offered by the Seller in “AS IS” condition subject to the promise, or warranty, by the Seller that the major operating systems shall be in working order at the closing of title. An engineer’s inspection goes beyond the basic operating systems and reviews the entire structure. An engineer’s inspection is not a guaranty; it is an informational report to be used by a Purchaser as a guide to make the final decision to purchase a home. The cost of the inspection is borne by the Purchaser (see closing costs below).

The Contract - Once an offer is accepted and the purchaser has decided that the home is structurally sound, the Purchaser and Seller proceed to contract with the assistance of their respective attorneys. The Contract, usually drawn by the Seller’s attorney, states the responsibilities of the Purchaser and Seller.  Your attorney should review these technical aspects of the contract with you, in particular, your responsibilities and the conditions under which you are agreeing to purchase the home. Once the contract is executed, the parties are bounded by the terms and conditions negotiated by the parties. It is the primary role of the Real Estate Attorney to ensure that Purchasers fully understand their obligations BEFORE they execute the contract

A basic real estate contract contains the essential terms of the transaction, names of the parties, purchase price, terms of financing the purchase, the personal property to be included in the sale, and approximate closing date.

It is customary for a Purchaser to be prepared to deposit up to ten (10%) percent of the purchase price, in escrow, with the Seller’s attorney, as a contract down payment can be negotiated between the parties on a case by case basis.

In addition, the contract should contain three (3) key contingencies:

	Good and Marketable Title - A Seller must be able to transfer “good and marketable” title to the property. Basically, the Seller must transfer title free and clear of all judgments, mortgages and other liens which may exist against the property. In addition, the property must be free of violations of any ordinances of any local municipal authority as part of the title search, which is obtained after the contract has been executed. If the Seller cannot convey good title, the Purchaser may cancel the contract and the contract down payment shall be returned.
	Mortgages - Almost every real estate contract is subject to the Purchaser being able to obtain a mortgage commitment from a lender. A Purchaser is usually given between 45 to 60 days to obtain a loan commitment by the Seller. A Purchaser must act in good faith, promptly apply for a mortgage loan, and fully cooperate with the request of this lender during this process. If the Purchaser cannot obtain a mortgage commitment, usually either party may cancel the contract, and the contract down payment shall be returned.
	Termite - In most cases, the contract shall also be subject to the Purchaser obtaining a satisfactory inspection for termites, or other wood destroying insects, from a licensed exterminator. In some cases, the firm performing the Purchaser’s engineering inspection can also perform this inspection. In the event termites are found, it is usually the responsibility of the Seller to cure the termite infestation and to repair any damage. If the Seller refuses to comply, the Purchaser may cancel the contract.
	Coordinates the closing of title and the mortgage loan with your lender

Preparation for Closing - Once all the contingencies are met, the Seller and Purchaser are prepared to proceed to closing. The setting of the closing is usually coordinated by the Purchaser’s attorney. The following parties must appear at a closing: the Seller, the Purchaser, their respective attorneys, the lender's attorney, a representative of the title company and real estate broker(s). In addition, the Purchaser

must gather the required monies to pay the balance of their down payment plus their closing costs (discussed below).

The Closing - A Real Estate Closing may appear to be a bewildering flurry of papers, but it boils down to three independent events occurring simultaneously. First, the Purchaser receives title to their home. Second, the Bank closes it’s loan and issues its loan proceeds to the Purchaser, who in turn transfers them to the Seller as part of the balance of the purchase price. Third, the Title Company guarantees both the Bank and the Purchaser that the Purchaser is obtaining good and marketable title. After the closing, you will receive a Closing Statement from your attorney detailing the financial aspects of the closing and copies of the documents executed at the closing.

Please be reminded that each property is unique and each contract has its own characteristics and problems, which may be encountered. A good real estate attorney will assist you to avoid the pitfalls that may arise so that your home purchase will proceed smoothly from start to finish.

CLOSING COSTS

Closing costs are those expenses associated with the purchase of a property other than the contract down payment. Closing costs fall into two major categories: Bank Related Expenses and Title Related Expenses.

Bank Related Expenses - These expenses are those incurred in obtaining the mortgage to complete your purchase. They include:

Points - A point, equal to one (1%) percent of the amount of the mortgage, is a fee paid to either the lender, or its designate (in the case where a mortgage broker has placed the loan), for the opportunity to obtain a mortgage loan from that lender. Points are 100% tax deductible when the mortgage is used to purchase a primary residence.

Mortgage Bank’s Attorney - Unfortunately, a Purchaser is customarily obligated to pay the Bank attorney’s fee, in addition to their own attorney’s fee, as a condition of obtaining the mortgage. This fee ranges from $400 to $900 depending on the lender.

Tax Escrow - Most lenders will undertake to pay the real estate taxes on properties it grants mortgages against. In order to have sufficient monies to pay these taxes, a lender will require a Purchaser to deposit 1/12th of the annual real estate tax bill in an escrow account with the lender, along with the monthly mortgage payment.  In addition, a Purchaser will be required to make an initial deposit, usually equal to 50% of the annual tax bill, in order to have sufficient funds set aside to make the first tax payment after closing of title.

Private Mortgage Insurance (PMI) - Anytime a Purchaser borrows in excess of 80% of the purchase price from a lender, that lender will require that the Purchaser obtain private mortgage insurance from a third party provider. The Lender will arrange for this coverage and pass the cost through to the Purchaser. This coverage must remain in place until the principal balance of the mortgage falls below 80% of the value of the property. The first year’s premium must be paid at closing, and varies according to the amount of the mortgage.

Homeowners Insurance - A Lender will also require that a Purchaser maintain homeowners insurance in an amount necessary to replace the dwelling house. In addition, most lenders require that the first year’s premium be paid in advance of the closing.

Miscellaneous Fees - Lenders shall also assess various fees depending upon their internal procedures. Some of these fees include: Tax Service Fees, Document Preparation Fees, and Application and Credit Fees. These fees vary depending on the particular lender.

TITLE RELATED EXPENSES - These expenses are those required to complete the transfer of title and to record the necessary documents associated with the closing. They include:

Title Insurance -Required by all mortgage lenders, title insurance guarantees that the Purchaser is obtaining good and marketable title from the Seller. This one time expense, set by statute, varies according to the purchase price of the home and the amount of the mortgage.

Departmental Searches - As part of the title search an abstract company will check the municipal records to ensure that the property is in compliance with the local ordinances affecting real property as well as the survey of the property. The fee for these reports varies depending on the municipality. In addition, if a new survey is required, a Purchaser can anticipate an additional expense of approximately $600 to have a new survey prepared by a licensed surveyor.

Mortgage Recording Tax (MRT) - Anytime a mortgage is recorded in the State of New York, there is a one time fee assessed against the Purchaser. In New York City, the fee is equal to 1.75% of the amount of the mortgage, less $25.00. The fees in the outlying counties vary, depending upon the local regulations, with a minimum of .75% of the amount of the mortgage, less $25.00. This “tax” is not tax-deductible.

Recording fees - In addition to the MRT, the Purchaser is obligated to pay a nominal fee to the County Clerk to record the original mortgage and deed. This one time expense is approximately $150 to $250, which varies according to county.

The only other closing cost not outlined above is the Purchaser's attorney’s fee. While attorney fees vary, a reasonable fee charged by a skilled real estate attorney is always a wise investment.

Eric Habib is well versed with the laws and regulations governing real estate transactions in the State of New York, and his advice can help ease concerns associated with real estate transactions in the New York Metropolitan area, including Long Island and Westchester. Contact the Law Office of Eric Habib. Let us help with your real estate endeavors.