Townhouse/Brownstone: Due Diligence & Bank Approval

Townhouse/Brownstone: Due Diligence & Bank Approval

The Negotiation and Signing of a Contract of Sale

As the Contract review and negotiation process reaches its conclusion, Kishner & Miller have the sophistication as Part of the purchase process to conduct a review of the various Departments of New York City which is crucial to making an intelligent analysis as to whether you wish to move forward and“into Contract”. The records held which the Department of Buildings; the Department of Finance should be analyzed. As a part of due diligence, Kishner & Miller and the client should analyze the following documentation before the Purchaser sign a Contract of Sale:

• 1. The Certificate of Occupancy
• 2. Permits/sign-offs
• 3. Violations
• 4. Open taxes
• 5. Open mortgages
• 6. Liens
• 7. Party wall agreements
• 8. Landmark designation

Assuming that you fully understand what you are purchasing, Contracts are sent to the Seller’s Attorney with a check for 10% of the purchase price, as the down payment.

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“AlCash”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”.Anon-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 date 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 Townhouse/Brownstone 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 fulfiled 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 loan is revoked 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 of a Townhouse, 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 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.