What is Attorney Review: In New Jersey, standard form real estate contracts typically used by realtors must, by law, include an attorney review provision. As per this standard provision, within three business days, either parties’ attorney may “disapprove” of the standard form contract and propose revisions, or cancel the deal. If this is not done within three business days, the contract becomes binding and final. Therefore, those who have signed a contract using a realtor should get the contract to their attorney right away, to facilitate a timely response.
For transactions without a realtor, the attorney can provide the real estate contract of sale. This will then typically be reviewed by legal counsel for the other party, who may suggest revisions. Until the contract is signed by all, it remains in negotiations.
The phase during which attorneys are reviewing and negotiating contract terms is called “attorney review.” Though it must be commenced within three days of signing a form contract supplied by a realtor, negotiations thereafter vary in time depending upon the underlying circumstances.
Once the contract is final, the buyer engages in inspections and obtaining financing.
Although attorney review is over, the attorney assists with advising on the contract requirements and deadlines, inspection negotiations, preparation of closing documents, coordination of closing with the buyer’s lender, coordination of closing requirements if a homeowners/condo association is involved, and, very importantly, ordering and reviewing title insurance and a survey, and addressing title issues which may be disclosed in the title work.
Survey: All mortgage lenders are going to require that a buyer order title insurance and provide an adequate survey as a condition of closing. Most mortgage lenders will allow closing with a copy of an existing survey of not more than ten years, so long as the seller signs a certification that it remains complete and accurate as of closing. However, I have been advised that this limits the buyer’s title insurance coverage, as only newly obtained surveys certified to the buyer and buyer’s title insurance company, will be insured. Therefore, I routinely recommend that my clients obtain a new survey.
Even when a mortgage lender is not involved, as with cash deals, the survey serves an important purpose in identifying legal rights and risks associated with a property and confirming the property description it the field. The survey will identify all structures on the property with respect to the property bounds. If structures are encroaching on the property of another, or vice versa, the survey indicates the potential dispute. Surveys additionally identify the location of easements and other similar restrictions, and, therefore, are important to understanding limitations and obligations that come with the property. A buyer can pay additional money to have the corner markers pinned in the field, as well. This serves the purpose of confirming boundary lines, giving potential notice to neighbors of the boundaries, and marking the field for potential future work, such as installation of fencing. In fact, when a buyer elects to NOT pay for having the corners marked, the surveyor often requires that the buyer sign a waiver of its right to obtain this additional service.
Title Insurance: Title insurance involves two polices: a policy protecting the lender, and a policy protecting the buyer/new owner of the property (Owner’s Policy of Title Insurance). All title fees are paid for by the buyer, and in New Jersey, rates are regulated and determined as a percentage of the purchase price. If the seller offers a concession towards closing costs, title fees may be included in those fees paid for by the seller.
Title insurance insures the buyer’s ownership of the property. Does your seller actually own what they are selling to you? Ownership may be compromised for various reasons which include, without limitation: 1) deeds, easements, or similar title documents which are not properly indexed, and which affect the boundaries and/or ownership of the property; 2) encroachments which are not identified on a newly issued survey; 3) claims of ownership based upon adverse possession; 4) mistakes in deeds; 5) undisclosed heirs in the chain of title; 6) forged documents; and 7) other title problems and/or liens which may not be a matter of public record.
A title insurance company first conducts critical searches on the property which identify: 1) current ownership; 2) open liens and mortgages; 3) past ownership; 4) open municipal fees, taxes, and assessments; 5) potential foreclosure and/or tax liens; 6) judgments against current or prior owners which must be paid prior to closing of title to minimize future liens and claims of fraudulent transfer; 7) unpaid child support obligations; 8) tidelands and flood hazard determinations; 9) easements and restrictions on the property, including utility easements, pipelines, old claims of mining rights, access rights, driftways, rights-of-way, common private roads or driveways, and so on. If the property involves a developer’s scheme or property owner’s association (or homeowner/condo association), the title work will include a copy of the restrictions which are placed upon all properties in the association, which can include deal-breaking restrictions, such as on fences, outbuildings, pets, home businesses, etc.
Based upon these searches, the title insurance company then provides a commitment of title insurance, which identifies conditions which must be satisfied prior to closing so that the buyer’s title to the property is insurable. Just prior to closing, the searches are updated to ensure no new liens or encumbrances are identified (the “run down”). After closing the buyer receives a policy of title insurance. The policy lasts for as long as the buyer or the buyer’s heirs own the property.
If undisclosed problems with the title exist as of closing and are later discovered, the title insurance is designed to defend claims in litigation and/or compensate the owner for the loss.
Attorneys and Title Insurance Work Together: Attorneys rely upon the title binder and commitment as due diligence on behalf of the buyer. When received, the attorney reviews the title work and advises the seller of issues which must be resolved, of easements of record, and similar. Coordination with the buyer’s lender is sometimes necessary. For example, some lenders require recording of updated easement agreements for common driveways and/or roads, to include maintenance obligations. Attorneys will negotiate and draft documents to resolve issues that appear in title. Attorneys can also negotiate escrow agreements for resolution of outstanding liens, open mortgages, and more, as approved by the lender and title company.
Even for cash deals, where a buyer is not using a lender, I highly recommend that the buyer purchase an Owner’s Policy of Title Insurance, for both the searches and due diligence that will follow, as well as to increase confidence that the seller is actually selling what buyer expects to own. It is very important to understand that all available searches are not done by the attorney as part of “attorney review,” inspections, and closing. Attorney’s typically rely upon complete searches by a reputable title company as per industry standards, to identify conditions of public record which affect title. However, by law, the attorney must obtain a judgment search and child support search prior to closing. This will be charged to the buyer as separate closing costs, if title insurance is not obtained.
In addition, the lack of title insurance may create problems when an owner wants to sell the property at a later time, to a new buyer who is obtaining a mortgage. Occasionally, title searches identify judgments or liens against the owner who last sold the property. This can often be resolved by presenting the current owner’s title insurance policy, allowing the sale to proceed without further issue.
© Shanahan & Voigt, LLC 2014
BE ADVISED that these comments are not legal opinions and are not to be relied upon as legal advice. If you need legal advice, contact your county bar association; most of which have referral services.