Real Property Purchase: What You Need on Closing Day
Real Estate Attorney NYC
Bank Approval/ Funds Available for Closing
By the time you have reached this point this means that you have performed your Engineer’s Report to review the physical condition of the property, reviewed with the due diligence with your Attorney and have entered into a binding Contract of Sale in which you have consented to and understood the terms thereof. As such, you are now seeking to do two things: (1) have the funds necessary to go the closing and (2) obtain “clean title”. These two items have been in some manner been addressed in your Contract of Sale. The Contract of Sale most likely has specified a designated amount of time for you to have your funds available/obtain financing and how much time you have to review your title report and provide any objections to the title to the Seller’s Attorney.
(i) The “All Cash” Transaction
Note: an “All Cash” transaction in the true sense of the terms means that you are not financing. This is very different form a transaction which is just “non-contingent”. A non-contingent transaction means that you may still be obtaining financing form an institutional lender/bank but you cannot necessarily by right void the Contract of Sale, if the institutional lender does not fund the transaction. You must know what type of Contract you are entering into!
(ii) Financing or the “Non-Contingent” Transaction.
With the very first steps of Contract negotiation and due diligence out of the way, what follows is that a Purchaser must arrange for financing with a bank assuming that the transaction is not being made in “all cash.” Your ultimate goal at this stage is obtaining an unconditional Loan Commitment Letter from an institutional lender {a/k/a a bank}. Most likely, you have already been in discussions with the bank or a mortgage broker. It must be ensured that the mortgage broker or bank representative possesses all necessary documentation, knows all due dates and has the level of experience required in the New York market. Most importantly, Purchasers must be cautious to not lock in a rate until a loan representative has definitely seen a copy of the Contract of Sale and understands the “on or about Closing date.” Closing dates in New York if not “Time of the Essence” are not precise dates but rather “on or about” which means that there is customarily {not definitely} a 30 day time frame in which to close from the date listed in the Contract of Sale to close. To avoid extension fees, Purchasers should think carefully whether or not to lock in a rate too early. It is also prudent for Purchasers to find out whether the loan product acquired has extension capability and associated fees just in case the closing is postponed. Purchasers will then receive a Loan Commitment Letter after the bank has finally reviewed all relevant documentation, done a credit report and agreed to fund the loan.
Moreover, Purchasers can choose from adjustable rate, fixed rate, or hybrid loans. All in all, the process for getting a mortgage may take two to four weeks so it is best to get an early start.
When the Contract of Sale is contingent on financing, a specified period of time, normally 30 days, will be granted to obtain the Loan Commitment Letter. Of course, it may in fact be the case that a Home Purchaser will fail to secure the Commitment Letter from a bank for legitimate reasons at the expiration of this 30-day period. Nonetheless, provided that the Purchaser had applied in full good faith, he or she retains the right to cancel the Contract and receive the down payment back. Also, it should be noted that the Purchaser could still, even at this point, try to convince the Seller for a contingency extension, which will yield more time to obtain the Commitment Letter.
The Loan Commitment Letter should be a clear indication that the Property and Purchaser has fulfilled the lender’s underwriting requirements. These requirements may include submitting additional bank statements, justifying any red flags in employment history and showing credit history. A loan commitment normally does not become a binding agreement until the bank receives an acceptable appraisal. Furthermore, the contingency period generally comes to a close the moment that the Loan Commitment issued. Still, the Purchaser is obligated to respect the Contract, even if the remaining terms of the Loan Commitment are not favorable. If the Purchaser’s loan is revoked by the Bank due the Property itself and not the Purchaser, often the Seller can be convinced to terminate the Contract of Sale.
(iii) Having your funds available.
You need to ensure that you have the balance of the purchase price in readily available funds, and are prepared to produce at the Closing the remaining purchase price. Remember, at this juncture, you are already in Contract, so now you need the remaining 90% of the Purchase Price i.e. the balance. Depending upon your financial situation, where your funds are located and who is actually delivering the funds, it is important that this issue is resolved. Many people do not necessarily readily available funds as they are in mutual funds, securities or in other investments so that there may be time needed to have funds liquidated in such a manner that you will have the funds available to bring to the closing. In almost every closing, the Purchaser must bring a bank check to the closing from an institutional lender that has a clearing house in New York County. Kishner Miller Himes is prepared to assist you in any manner that it may to make this process as easy for you as we may. Also, please note that it is rarely that you just write one check for a closing equaling the amount of the balance of the purchase price. Rather, the Seller has the right to direct you to produce several checks, to many different payees. This is because a Seller needs to make payment to other entities to make the deal happen, like paying off the Seller’s mortgage or payment of taxes. Bottom line, even in an “all cash” transaction, there is much coordination and thought that must go into the process of having your balance of the purchase price ready for the closing.
The Title Report
Just as any other fee simple purchase, a Purchaser needs a Title Insurance Policy to protect his or her title. Ann Attorney will order a Title Report on the property on the Purchaser’s behalf. While there are individuals who claim it is better to hire one company rather than another to save money, law sets rates and there is no variation. A title search is meant to ensure that no outstanding liens, mortgages, judgments or other “cloud” on the title are present when the deed is given to the Property Purchaser upon closing. A Property Purchaser cannot be forced to close if the Seller cannot produce a good and insurable title. Also, if the liens and encumbrances are not dealt with by a specified period of time, then the Property Purchaser is entitled to receive back the down payment. After the title company determines that the Seller can produce a clean deed, Property Purchaser must purchase a Title Insurance Policy, at the closing. This is a one-time payment that is regulated by law and depends on the price of the home. This policy remains in effect for the as long as the Purchaser owns the property and also protects the Purchaser from any other parties’ claims against the property. After the title insurance policy is issued, the property is owned by the Purchaser.
Closing Day
After the potential loan has reached a “clear to close” status and all title issues have been resolved, a Purchaser can safely conclude that Closing day is near and must get ready to close. The closing statement and check instructions will likely be sent only right before the actual closing day. Though this can be aggravating, this is part of the typical real estate transaction in New York. When purchasing “all cash,” however, check instructions may be provided by Purchaser’s Attorney far earlier than if financing. The last minute feel of getting instructions for how to write your checks is due to essentially two factors: (1) The Purchaser’s Attorney must await for Seller’s Attorney for instructions on how the Seller wants their checks and in what amount each check should be; and (2) Purchasers must wait for the lender’s Attorney to issue the “net proceeds” on the loan, which refers to the actual amount the bank brings to the closing. The bank will directly deduct its many fees from the requested loan amount. Therefore, the Purchaser should be prepared to bring multiple Certified or Official Bank Checks, from a bank that is part of the New York Banking Clearinghouse. One last “walk through inspection” of the Home is recommended to ensure that all appliances and other systems are in the condition as contemplated by the Contract. If there is an issue during the “walk through inspection” same must be raise at the Closing. Once the Closing occurs it is difficult if not almost impossible to deal with these issues. Purchasers should make sure to reserve 2 hours for the closing process, which will normally take place at either the office of the lender’s counsel or at the Seller’s Attorney’s office. Lastly, there are many cases where the Seller will be purchasing a new property and may not be able to move out on closing day. A Property Purchaser can consent to allowing the Seller to stay beyond the closing day and be compensated accordingly with rent deductions. This is known as a Post Possession Arrangement. On the Closing Day you will get your official Title/Deed to the Property.
Items to be certain to bring to the Closing:
- Two (2) forms of valid Picture Identification
- Your personal check book
- Your favorite Pen