Real Estate Transactions
Owning a home has an almost mythical quality as part of the “American dream.” The process of negotiating, agreeing and executing the transfer of real estate, though, can be long, complex and fraught with risk for both sides. Shiryak, Bowman, Anderson, Gill & Kadochnikov LLP will take you through the process of real estate transactions, from the contract negotiation through the closing and dedicate special focus on the practical aspects of each step along the way.
What you need to know
Real estate brokers are employed as the agent of the seller in order to obtain a buyer for their property. The contract between the broker and seller is called a listing agreement. The agreement may be an open agreement whereby the broker earns a commission only if he or she finds a buyer. A listing is exclusive if the broker is the only agent entitled to a commission for finding a buyer. Under an exclusive arrangement, a broker may be entitled to a payment even if the seller finds the buyer without the brokers aid. Real estate brokers and salespeople are licensed and regulated by local state laws. It is commonly required in real estate contracts that the title to the property sold be marketable. This requires that the seller have proof of title to all the property he or she is selling and that third parties not have undisclosed interests in the title.
The most common method of financing real estate transactions is through a mortgage. No one wants their homes to decline in value. By 2010, nearly one-quarter of U.S. homes were worth less than their mortgage loans as a result of the recession. In plain terms, this is called being “underwater” and it makes it difficult to sell the property and it increases the risk of buyer default. If the property owner stops paying a mortgage, rather than going through the expense and hassle of foreclosing on a house that is worth less than the bank’s mortgage interest, a bank may allow the property to be sold for the market price, even if it’s less than what is due on the mortgage. This is known as a “short sale.”
Short sale contracts will include an addendum executed between the buyer, the seller, and the seller’s mortgage lender addressing how the mortgage on the property will be discharged. In the case of a non-recourse loan, the bank can only collect the proceeds of the sale, and the owner is not liable for the difference between the short sale price and the amount owed.
Keep in mind
Mortgage lenders that face a high likelihood of property foreclosure are drawn to short sales. A short sale avoids the costs and hassles associated with foreclosure, and it gives the parties an opportunity to find a buyer who is willing to pay more than what the property would fetch at a foreclosure auction. However, because it involves a sale where the purchase price is not sufficient to pay off the mortgage holder, a short sale can only be accomplished if the mortgage lender has agreed to release the mortgage for less than what is owed. In these cases, the lender issues a “short sale letter” approving the sale and creating a framework for the discharge of the mortgage. The mortgagor and mortgagee must sign the short sale letter and they can include any number of terms regarding payment and other conditions the lender requires to discharge the loan. Most lenders retain the authority to review and approve a real estate sale, and a short sale letter will include deadlines for closing a sale.
Real Estate Closing
A real estate transaction ends with a process called “closing,” which is when both parties must fulfill all terms and conditions of the exchange. The closing ends the transaction and contract terms are no longer applicable after the closing unless the contract states that such term will survive closing. Real estate closings can be done in person by the buyer or seller or through an escrow or power of attorney agent. Closing documents may include affidavits of title, settlement statements, deeds, bills of sale, notes, security instruments and assignments of warranties or leases on the property. An attorney, paralegal or title closer will build a file with all documentation pertaining to a real estate transaction, and at closing, all documents must be assembled and executed. Closing documents vary based upon the nature of the real estate transaction. For example, closings where the buyer is using a purchase money mortgage to buy the house is more complex and requires many more signatures. Title insurance companies also may require more formalities. At a minimum, the seller must provide the type of deed called for by the contract and must provide “marketable title” to the buyer. All parties who are due payments are typically paid at closing. Of course, this includes the purchase money, but also includes the broker’s fee, satisfaction of the mortgage loans on the property that the seller still owns, attorney’s fees, title insurance premiums, etc.
What we can do
Our lawyers have completed acquisitions, financings, and developments for projects and homes throughout the five boroughs and Long Island. With experienced, practical attorneys accustomed to addressing all aspects of today’s complicated real estate transactions while at the same time anticipating our clients’ future needs and requirements, we have a unique capacity to handle sophisticated acquisitions, dispositions, development and financing transactions. If you need a law firm with established credentials in real estate practice, you are welcome to meet with us in a free consultation so that we can walk you through the transaction process and explore your options.