REAL ESTATE TRANSACTIONS OUTLINE
Steps in Purchasing a Home
Default rules
Ø If the parties did not agree otherwise this is the law. Almost always they can agree otherwise
Ø Same basic transactions for small homes and large real estate transactions.
Step 1. Listing property with broker. Agreeing to broker commission.
Step 2. Inspect the property.
Care about condition of property, location, price, financing, etc.
After closing any problems are not seller’s problem anymore.
Can create contingency in K- if there are problems after closing they can rescind K.
Step 3. Binder Agreement
Usually not enforceable, but if detailed enough can be enforceable
Some areas of the country you do not need an attorney for transaction. Real estate broker/ escrow company drafts paper.
NY – attorney is necessary for real estate transaction (Jud-478).
Brokers must avoid two things otherwise could be responsible for authorized practice of law:
Inserting any provision in a k of sale that requires the exercise of legal expertise.
Giving legal advice.
Step 4 Formal k of sale:
Important provision is contingency
Contingent on buyer’s satisfaction after inspection of the property
Contingent on receiving satisfactory mortgage financing.
Agree to pay but there is no mortgage contingency. Now buyer can’t get financing= default. Seller gets down payment= liquidated damages.
10% interest fee is per se reasonable but can be as high as 25%.
People focus on amount of loan.
Want to put in maximum interest contingency b/c may be able to get a loan but at a high rate.
Some take into account loan origination fees not to exceed a certain percent.
Buyer must be honest on all of this. If not this can cause default. Parties will be excused if can’t meet contingency
Step 5: Pre-closing contingencies are satisfied
Get financing
Passes inspection
Title search.
Reveals serious enough defect? Depends on marketable title. If so serious to make title unmarketable- K no good. If not so serious and title is marketable- must move forward.
Step : Closing
Who drafts what Ks?
Seller’s attorney drafts:
Deed
Copy of seller’s title insurance: you would probably want the same terms as the previous buyer
Survey: it tells you the acreage, gives you a map of the property and you focus on the boundary lines, specifies encroachments. An encroachment could be a possible title defect.
Many sellers lose their survey: you can go back to title insurance company. But some companies have gone out of business. If its gone, then a new survey needs to be done. Bank will insist on a survey certified w/n last 10 years. Survey costs around $400-500
Certificate of occupancy: so that building dept cannot come in and force you to change. It tells you under local zoning laws of permissible use. Ex: buyer wants it for residential purposes, but purpose of building is industrial.
Current leases: even if it a family home and it is rented out. They wanted to know the rent payable, they want to know when the lease expires. Show them before the k of sale so there is full disclosure.
Building dept’s inspection: to make sure there are no violations. Buyer would want seller to clear all violations up before the closing. Leave money in escrow: you estimate the amount you need and you double it to allow you to clear up violations.
Closing statements
First draft of k of sale.
Lender’s (Bank) attorney drafts
Promissory note- obligation to repay.
Mortgage- creates lean on real estate.
Two causes of action sue for collateral that was pledged or sue on promissory note: if borrower has other assets can go after this.
Some states don’t allow this c/a due to anti-deficiency statutes. Typically go after mortgage first and if this does not satisfy then dept then sue on note, but anti-deficiency statues make personal assets unreachable.
NY does allows to after assets.
Respra hud one statement : lists all expenses of loan
Buyers’ attorney prepares:
Ask for changes of K of sale.
Checks on other drafts.
BROKER’S DUTIES
Broker is an agent, and party that hires him is a principal. Broker is sellers agent.
Broker is entitled to commission when broker is a procuring cause, which means that without the broker, the deal would not have happened.
General Rule: broker earns a commission when he procures a ready, willing and able buyer at seller’s terms. Even if closing doesn’t happen, he gets a commission. If closing doesn’t happen because of seller, broker still gets commission.
Broker owes his Principal 3 fiduciary duties:
Duty of loyalty- self dealing; can only act in the benefit of the P.
Broker wanted to sell property for cheaper to his friend, even thoe he had a higher offer from someone else. Never told the seller. Breached fiduciary duty and got no commission.
Duty of honesty: overlaps with the other 2
Duty of full disclosure
Where there is a conflict of interest when broker has interest in the property that he is trying to sell for seller, there is a duty to disclose.
Insert broker discussion of the condition of property here
3 types of listing:
1-Open Listing- broker is entitled to their commission only if he himself secured a purchaser. If the property is listed with more than one broker, only the broker that procured the sale gets the commission. Here broker can get up to 6%. This is buyer’s favorite option.
2- Exclusive/Exclusive Agency Listing- Broker is entitled to commission if any other broker secured the purchasing. If the seller secured the purchase, broker gets nothing. Seller might find themselves to have pay twice if there are 2 brokers because might have to pay to the broker that procured cause and to the broker with exclusive agency. Here broker gets 2% or more if he was the one who sold.
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ted, assigned, surrendered or declared, unless by act or operation of law, or by a deed or conveyance in writing, subscribed by the person creating, granting, assigning, surrendering or declaring the same.
o Exception: lease term that is a 1 year or less need not be in writing but if it exceeds 1 year it must be writing,
o If transaction doesn’t comply with S/F, contract is void.
Other Rules:
· Parcel of land for sale for $100. Does this need to be in writing? Yes. That’s the difference b/w contracts S/F and property S/F. No matter how small the property amount it must still be in writing.
· It is a month to month lease. Tenant is there for 2 years. Must this lease be in writing? No. b/c the term of this tenancy is 1 month. It’s not the time you actually occupy; it’s the term of the lease.
· A grandparent that owns a piece of real estate gives financing to his grand kid. Whether it is considered installment sale or mortgage it needs to be in writing b/c of wide scope of statute “any estate or interest in real property” even that contingent interest is interest in real property therefore it must be in writing to be enforceable.
Signature
Lesson Hypo: JPM want to build a 150 million hotel in Tribeca but has a hard time getting financing for the hotel. JPM talks to a partner in England and jots down the terms of the financing agreement that it wants. JPM puts down price, address, and signs the paper. His friend calls and says I got you the financing. JPM doesn’t want English partner as a partner anymore. Could the English friend enforce the agreement?
There must be a signature. Signature must:
· It must be signed (at the end of doc) by the person creating, granting, assigning, surrendering or declaring the same”
o In JPM hypo we only need JPM to sign b/c he is creating the interest, the other guy doesn’t have to sign
· The current owner needs to sign the deed
· Who signs the mortgage? Seller
c. This is what the writing must have in reference to conveying an interest in land:
—Identify the individual being charged (who you want the k enforced against): k has to be signed by the party charged.
—Parties: state person’s name and address: this is sufficient to identify party
§ If it is a corp, identify headquarters, state, name of corp.
