Making an offer on a home is an exciting milestone. Ideally, your potential home doesn’t need more work than meets the eye, your loan will sail through underwriting, and the records of title for the home, and its sellers, are “clear.” Ideally, movers will be scheduled and closing will occur on time, and you will take your new home in broom clean condition, without any trash or personal property (or unknown underground storage tanks) left behind. As a real estate attorney, I understand this exciting milestone, and the importance of helping buyers navigate their new home purchase to minimize distress and efficiently move towards closing.
In today’s lending climate, with the market crash, foreclosure epidemic, and expansion of federal regulations, we face increasing pressures and unpredictability in residential real estate transactions. And as a result, homeowners must “jump through more hoops” than ever before. Lenders, appraisers, and title companies face constantly evolving regulatory requirements. Sellers are often distressed, with little or no equity left in their home, perhaps while facing divorce, bankruptcy, or collections. If a home is being sold by the executor of an Estate, additional requirements are needed to keep a closing on track. Something as unexpected as a seller with child-support arrears, discovery of an underground storage tank, a failed septic inspection, a poorly managed homeowner’s association, or yet another devastating storm, can stall or cancel your closing.
It is my role as a real estate attorney to evaluate your transaction and carefully modify your realtor’s standard form contract to minimize risk. Prior to closing, I continue to navigate the contract, and its many contingencies, requirements, and deadlines. I negotiate inspections, work with sellers’ attorney to address any title defects, and coordinate with all parties in addressing lending and title conditions. I review closing documents and serve as closing agent. Post-closing, I disburse checks, fees, payoffs, and title documents.
During this process, there are many steps which buyers must complete to avoid delays, to comply with your real estate contract, and to facilitate legal efforts through timely communication. Also, buyers may engage in additional due diligence, yet often don’t, for lack of knowledge and guidance or due to misunderstanding about the roles of the parties involved in residential real estate transactions.
The following tips will assist you, the buyer, in understanding and proactively facilitating the purchase of your home:
- Attorney Review: Avoid delays in getting your signed contract to your attorney. Once both parties sign the realtor’s standard form contract, your attorney has only three business days to review and disapprove of the contract. “Disapprove” is the standard language used to begin the “Attorney Review” period, during which the attorneys negotiate the contract. Attorney Review can last a day or two, a week or two, or longer, depending upon the availability of the attorney and the motivation of the parties. Until Attorney Review is completed and both parties acknowledge that the contract is acceptable as revised, either party can terminate the contract. Therefore, buyers often want to quickly conclude attorney review, to prevent sellers from accepting another offer. You and your attorney should discuss the contract, your concerns and priorities, and the subject property at the beginning of the attorney/client relationship, and prior to beginning attorney review.
- Carefully review the Seller’s Disclosure. The Seller’s Disclosure must be provided to you prior to making an offer. It must disclose items such as the type of mechanical systems, utilities, “known” leaks or other issues, open permits, and similar. Review the disclosure and discuss any particular concerns with your attorney prior to Attorney Review, so that your contract may be revised, as needed.
- Inform your attorney of financial contingencies. If you must sell your existing home, other real estate, stocks, or liquidate other asset prior to closing on the purchase of your home, inform your attorney prior to beginning of Attorney Review. Your contract must be modified to protect your rights in the event that you are unable to sell your home or liquidate required assets. Standard contracts contain a mortgage contingency, so that a lender must commit to issuing your loan prior to your obligation to close. Review the contract’s mortgage contingency to confirm the accuracy of your loan details, such as interest rate, type of loan, and loan term.
- Understand Cesspool Requirements. Effective June of 2012, properties serviced by a cesspool, privy, outhouse, latrine, or pit toilet may not be transferred without upgrading to a septic system. (NJAC 7:9A-3.16(b)). NJDEP regulations allow limited exceptions to this rule, such as a conveyance between family members or former spouses. (NJAC 7:9A-3.16(c)). Some properties do not support installation of a septic system, whether due to soil conditions, proximity to wells, insufficient lot size, or similar constraints. If such a property is serviced by a cesspool or similar system, the owner must hire an engineer to verify that a septic system is infeasible, and that the cesspool, or similar system is or may be adapted in a manner that is protective of human health and the environment. 7:9A-3.16(a) (1)). As a last resort, a holding tank may be installed, which requires periodic pumping. (NJAC 7:9A-3.16(a) (2)). However, generally, upon the transfer of property containing a cesspool or similar prohibited system, the system must be upgraded to a septic design. Therefore, during contract negotiation, the buyer and seller must negotiate whether septic design, approval, and installation will be the financial responsibility and a project of the seller prior to closing, the buyer after closing, or some combination thereof. While often the seller assumes upgrade responsibility prior to transfer of the property, some deals require that the buyer perform the upgrade after closing. However, if a buyer delays hiring an engineer until after closing, the buyer risks accepting a property that cannot be upgraded due to site constraints, or that requires a mounded system, or that is more costly than originally anticipated. Other unknowns may occur. As an alternative, the parties can agree that seller obtains engineering, which must be acceptable to the buyer, or the buyer may invest in the engineering, prior to closing, as part of buyer’s due diligence. If the buyer is upgrading, upon transfer of the property, the parties must clearly document which party is responsible for compliance with the applicable NJDEP regulations.
- Select reputable, licensed home inspectors to comprehensively inspect the home, including mechanical systems, septic system (if not municipal sewer), radon exposure, wood destroying insects, suspicious pipes or other signs of underground structures, and hidden spaces such as crawl spaces and attics. Be wary if the home is so cluttered that you are unable to adequately view the home, such as the condition of floors under rugs, the condition of foundation walls in crowded basements, or the interior condition of a roof when attic access is blocked. Ideally, inspections will occur after conclusion of Attorney Review, so that you are first in line to purchase the home when investing in inspections. Promptly complete inspections, to confirm the home is acceptable, prior to investing in title work and surveys. Be present during inspections and take any necessary measurements: with limited exceptions, sellers do not have to allow subsequent visits to the home.
- If you are applying for an FHA loan which allows a low loan to value ratio, your lender may require repair of certain conditions prior to issuing the loan, as part of the appraisal process. Let your attorney know that you are considering an FHA loan, if this is not already identified in the contract. Most importantly, the appraisal often occurs later, after inspection issues are worked-out, when sellers might be emotionally and financially resistant to making further repairs and buyers are often weary of taking on additional expenses. Instead, ask your inspector to review the FHA Loan Inspection Checklist, and to identify conditions which exist and which might compromise your loan. Keep FHA requirements in mind when selecting your inspection demands.
- Determine your position on inspections. Determining whether the condition of a home is acceptable to you is primarily an economic decision, rather than a legal question. You may decide that certain inspection concerns are negotiable, while others are deal-breakers. Some you may want to repair yourself, at seller’s expense, while others you may want repaired by the sellers. Some conditions might be livable, to keep the transaction moving forward. Your attorney and realtor can share their experiences with inspection negotiations. Yet the ultimate decision is with you, the buyer. Within your contract deadline, clearly notify your attorney of your ideal and bottom line positions with respect to inspections, to keep your closing on track.
- Review township and county records. Government records, such as permits and approvals for renovations and repairs, septic work, and underground storage tank installations and removals, are available under the Open Public Records Act. Databases are available for sex offender registrations and for identifying nearby environmental contamination. Municipalities can confirm a neighborhood’s zoning classifications and restrictions, and whether nearby land-use and zoning applications are pending, which may change the character of the property. This due diligence is the buyer’s option, and the buyer’s responsibility, or can be performed by your attorney for an additional fee. For those buyers who elect not to review government records and databases, they and their attorney are relying only upon the seller’s disclosure, the realtors’ listing, and the home inspections. However, such descriptions are typically to “the best of seller’s knowledge,” may contain errors, and/or may be completed by someone without sufficient knowledge of the history of the property or the neighborhood. Contact your municipality and county for information on accessing these valuable records. Be aware of your contract deadlines for completing additional due diligence.
- Become familiar with Association requirements. If the property is managed by a homeowners or condominium association, promptly review the Public Offering Statement, Bylaws, and Rules and Regulations to ensure the restrictions placed on your property, such a limitations on fences, pets, outbuildings, commercial activities, and similar, are acceptable. Inquire with the association regarding the status of improvements to the common areas and recreational facilities. Determine how the association is managed, such as by a Board of Directors and/or by a management company. Understand your financial commitment in choosing to own a property managed by the association: what are the monthly fees, what are the current assessments, are special assessments anticipated? The association will require additional paperwork and will collect additional new-owner fees at or prior to closing. At closing, the association fees for the current period will be prorated based upon your date of closing.
- Keep your loan process moving along. Promptly provide all documentation and information requested by your attorney, your lender, and your title company. Delays in furnishing information may delay closing, and might be found a breach of your contract. Also, changes in your credit score, new debts, court judgments, and changes in your income or employment may compromise your loan and your closing. You will be required to purchase homeowners insurance naming your lender as an additional insured. Promptly provide proof of insurance to your lender and your attorney.
- Promptly provide your attorney with updates regarding your inspections, your lender, and your independent due diligence. Keep you attorney apprised of inspection schedules, inspection reports, receipt of a mortgage commitment, notice that an appraisal has been scheduled, discovery of a new concern, lender delays, and similar.
- Select your Survey Options. Your title company will require preparation of a new survey at your expense, with exception only when seller certifies an existing, accurate survey which is less than ten years old, or a multi-family complex has a master survey which may be certified by a surveyor. When obtaining a new survey, buyers should be presented the option of having the boundaries of their property marked in the field, at an additional cost. This is especially useful when planning for future fencing, outbuildings, landscaping, or pools, or when concerned about clearly identifying boundaries with neighbors. Notify your attorney if you anticipate ordering survey markers.
- Understand the Private Well Testing Act requirements. Residential homes serviced by a private well must be tested prior to closing. Unless your contract provides otherwise, PWTA testing is the seller’s financial responsibility. The PWTA does not require that the seller treat the water, only that the seller test the water and notify you, the buyer, of the results. As a buyer, at closing you only need to acknowledge receipt of the test results, even if the water is contaminated. However, a properly modified contract protects you from closing on a home with contaminated water, and allows you, as buyer, to demand that seller treat contaminated water. PWTA tests evaluate primary (health) and secondary (aesthetic) parameters. The New Jersey Department of Environmental Protection and the U.S. Environmental Protection Agency provides public information on the risks and detrimental effects of drinking water contaminants. Promptly review PWTA analytical reports and notify your attorney if the report is acceptable, or unacceptable.
- Be realistic in scheduling your move, especially if buying or selling homes at the same time. Lenders are increasingly leaving closing dates open-ended or approximated, unable to commit to underwriting timeframes, while buyers and sellers are eager to make definitive plans. Your seller may also be scheduled to buy a home from yet another seller, who is also buying, and so on. When one party has a delay in closing, a chain reaction of delayed closings and angered parties may result, especially in light of the costs charged by movers for overnight storage of furnishings, while buyers wait to close. However, planning for overnight storage and accommodations allows time between a sale and a buy, allows greater time for wire transfers of sale proceeds, minimizes your chances of breaching your contract to buy as a result of unavoidable delays in your sale, provides time for addressing any walk-through issues, and greatly reduces the stress on all concerned, especially you. If circumstances require that you buy and sell in the same day, request closing of your sale by Power of Attorney, so that you do not have to attend the sale. Closing by Power of Attorney requires advanced bank approval. However, you should anticipate personally attending the closing on your home purchase, during regular business hours.
- Determine how you will take title to your new home. Title may be held as: 1) tenants by the entirety (if married); 2) as joint tenants; or 3) as tenants in common. Tenants by the Entirety must be married or civil union partners, with each party having 100% ownership and right of survivorship (when one dies, the other owns the entire property). Both parties must consent to changes in the ownership of the property. With Joint Tenants, each party owns a 100% interest in the property, with the right of survivorship. With Tenants in Common, each party owns only a fractional interest in the property,, with no right of survivorship. For example, if two people own property equally, as tenants in common, each person has a 50% interest in the property, which that person may transfer or sell. If one owner dies, the other owner does not automatically own 100% of the property. Instead, the 50% interest in the property must go through the probate process, and will be given to whomever is the beneficiary of the property by will or, if no will, by statute. Your choice of title has important implications in your legal rights and in your estate planning. Ensure your estate plan (will/trust, power of attorney, and living will) are up-to-date as your assets and liabilities change.
- Review your title report. Your lender will require that the you purchase a title insurance policy, naming the lender and you as the insured parties. Even in cash deals, with no lender, it is advisable that a title policy be ordered, to protect the short and long-term interests of the buyer, to facilitate a smooth closing, and to minimize issues with buyer’s future sale of the property. After ordering the policy, buyer’s attorney will receive a title binder, including a report on title. The title company may require repair of title defects, payment of outstanding judgments, and similar, prior to committing to issuing title insurance at closing. Your attorney will review the title report and binder, and explain those issues, if any, that must be addressed prior to issuance of your loan and closing of your transaction. Buyers should understand the title report and binder, which identify deed restrictions, utility easements, outstanding taxes and related municipal charges, restrictions on property rights, notice of foreclosure, and similar.
- Identify and set-up accounts with utility providers. Shortly before closing on your new home, you will perform a “walk-through” to confirm that the property is vacant, in the same condition as during inspections, with any inspection items reasonably addressed, and in broom-clean condition. It is important that the seller of a home maintain current utility accounts until completion of your walk-through, so that you may confirm appliances and mechanical systems are in working order. Contact utility providers for your home and notify them of the date on which you will take occupancy of your home. Set-up accounts, and confirm that the seller will maintain the account until completion of the walk-through. Equipment, such as tanks or water softeners, may be rented. For metered services, the seller will have to obtain a final reading. If an oil or propane tank is located onsite, the amount of fuel remaining in the tank will purchased by you, the buyer, at closing, based upon the utility providers current rates.
- Prepare for Guaranteed Funds at Closing. The buyer’s attorney serves as closing agent, collecting funds from the buyer, the buyer’s lender, and if required, from the seller. Funds are deposited into an attorney trust account. After receipt of all funds and signing of all closing documents, the buyer’s attorney distributes the funds, such as realtor’s commissions, title and attorney fees, mortgage pay-offs, taxes, and similar. Prior to closing, proceeds and disbursements are itemized in a HUD-1 Settlement Statement, for review and approval by the buyer and seller, the attorneys, the lender, and the title company. Buyers typically must bring additional cash to closing, which must be provided by guaranteed funds, such as a bank check or wire transfer. Wire transfers require processing time, and are ideally initiated the day before closing, with a modest overpayment to allow for later adjustments in the HUD-1. Wire transfers are preferred because, once received, the funds are available immediately. By comparison, even a bank check requires time to clear the depositories “fraud” review, potentially delaying distribution of transaction proceeds.
The buyer, realtor, mortgage broker, lender, inspectors, title company, and attorney are a team, with each playing an important role, from offer to closing. The foregoing tips are intended to inform and assist the typical buyer in navigating the purchase of a home and understanding these roles. While these suggestions are not a substitute for personalized legal advice based upon the particular facts and circumstances of your transaction, an informed buyer is better positioned to proceed through the transaction with more confidence, fewer delays, and better communication.
Nicole L. Voigt focuses her law practice in commercial and residential real estate transactions, as well as related contracts, leases, land use, zoning, and environmental matters, and tax assessment appeals. Ms. Voigt additionally practices landlord-tenant law, including commercial lease negotiations for landlords or business tenants, and representing residential landlords in all aspects of the landlord/tenant relationship. Ms. Voigt is a Court appointed landlord tenant mediator. Ms. Voigt also focuses in business formation and business contracts. Ms. Voigt offers litigation services arising from business, real estate, environmental, land-use, landlord-tenant, collections, construction, and administrative permitting and proceedings. Ms. Voigt collaborates with partners Kevin M. Kilcommons and Robert J. Shanahan, Jr. regarding elder law, family law, complex commercial litigation, estate documents, including wills, trusts, powers of attorney and living wills;, and estate administration and probate. Ms. Voigt received her Juris Doctor from Northeastern University School of Law in 2000, and obtained licensure in Massachusetts (2001), Pennsylvania (2008), and New Jersey (2008). Ms. Voigt received a Bachelor of Science degree in Ecology & Systematic Biology with a minor in Statistics in 1995 from California Polytechnic State University. Ms. Voigt enjoys using her interdisciplinary background to facilitate land use matters and remediation of contaminated sites pursuant to the Site Remediation Reform Act. You may contact Nicole at (908)713-1862, or firstname.lastname@example.org (no ‘h’). For more information, visit www.kscounsel.com.
THE INFORMATION CONTAINED HEREIN IS MERELY AN EDUCATIONAL SERVICE TO PROVIDE BASIC, GENERAL INFORMATION AND IS NOT LEGAL ADVICE OF ANY SORT. FURTHER, BY EXPLORING THIS INFORMATION, YOU UNDERSTAND AND AGREE THAT NO ATTORNEY-CLIENT RELATIONSHIP IS BEING FORMED.