A standard real estate transaction for the purchase of property requires the active and diligent participation of several different parties, each carrying out specific tasks. In this article, we will give an overview of such parties and their respective tasks. Keep in mind that this overview is specific to the purchase of property rather than a cooperative, condominium, or other type of real property interest.
The players in such a transaction are as follows: a buyer and a seller and their respective attorneys; a mortgage banker and the underlying bank and its attorney; a title company and frequently real estate agents representing a buyer and seller. Not all transactions involve real estate agents or mortgage bankers, but we discuss their respective roles to provide a complete picture.
The process commences once a buyer submits an offer that is accepted by a seller. The offer is then communicated to the buyer’s and seller’s attorney so that the seller’s attorney can prepare a real estate purchase contract. Once the buyer’s and seller’s attorney negotiate and ultimately agree on a final contract, the buyer executes the contract, and buyer’s attorney sends the signed contract (plus the down payment stated in the contract) to seller’s attorney. Seller’s attorney then has the seller countersign the contract, deposits the down payment into the seller attorney’s trust account and sends back a fully executed contract to the buyer’s attorney. It is at this point that the transaction is deemed to be “in contract” and the fun begins.
Once the buyer receives a fully signed contract from his/her attorney, the buyer is charged with proceeding with the mortgage application diligently with full speed. A conscientious buyer would have already started the process by vetting mortgage bankers and banks, comparing rates, and choosing the bank and banker to work with. The mortgage application is oftentimes complex and requires that the buyer continue to provide information and documentation. The buyer must provide all requested information timely and completely, and should constantly remain in contact with the mortgage banker handling the transaction. The buyer usually has a restricted period of time, typically 45 days (although this can vary), to provide all documentation to the bank’s underwriters to convince the bank to issue a commitment. A commitment is just that: a promise by the bank to fund the transaction on the stated terms and conditions. An appraisal will usually follow. The buyer usually handles this process alone and should keep his or her attorney informed in the process; however, the onus is on the buyer to do whatever is requested or required to secure a commitment. In turn, buyer’s attorney should keep the seller’s attorney informed to show buyer’s diligence and timeframe.
If the buyer is unable to secure a commitment within the stated time period, buyer must communicate to his or her attorney immediately so that the parties can decide whether to request an extension from seller’s attorney or terminate the contract. This is why communication among the parties is so critical.
Once a buyer secures a commitment, the buyer’s attorney shares the commitment with the seller’s attorney and simultaneously involves a title company. Oftentimes when timing is tight and the parties are aware that a commitment is not an issue, a buyer’s attorney may involve a title company early in the process. The title company is charged with searching all records to ensure that the seller listed on the contract is really the true owner of the property; and determining if the property is subject to any liens, violations, mortgages, or other encumbrances that would prevent buyer from acquiring free and clean title to the property. The title company works closely with seller’s attorney to address potential and actual issues, ensuring that all mortgages and liens are paid and removed before closing. The title
company sends a preliminary search that identifies any such issues that all parties (buyer’s attorney, seller’s attorney and lender) review and may request additional information. The title company works closely with the seller’s attorney to provide clearance.
Once the title company and its underwriter are comfortable (that is, can issue title insurance to ensure that the property being transferred will be free and clear and properly held by the buyer), the title company will communicate its clearance to all parties. In the meantime, the lender’s underwriters continue to review the buyer, the title, and the file to ensure that all open issues are addressed and that the lender can fund the transaction. Lender then brings in its own attorneys who will handle the closing and funding of the transaction on behalf of the bank.
During this time, the real estate agents also stay involved by providing any assistance to either side, which can include provide access for an appraisal, facilitating the exchange of documents or information, answering questions, and generally being available to assist in the transaction as needed.
When the title company and lender and its counsel issue a clearance, the parties then all communicate and work together to schedule the culmination of the group’s efforts in the form of a closing.
A closing is the physical exchange of funds and documents that transfer the property from the seller to the buyer. A successful closing requires that each party carry out his/her respective duties with diligence in a timely manner and that the parties continually communicate with each other to amicably work together to get to the end goal of a closing.
A competent and experienced attorney can make even the most difficult transaction get to the finish line.
Please call one of the attorneys at Beress & Zalkind PLLC at 718 513 3588 or email firstname.lastname@example.org to assist with your legal needs