Real Estate - Frequently Asked Questions
When should I contact an attorney to buy or sell a real estate?
When searching for or listing a property, a lawyer may not always be necessary unless the nature of the property is complex, such as commercial real estate. However, a real estate attorney should be consulted during the negotiations for the sale or purchase of real estate. Although not required by law, having an attorney present during negotiations may not only result in favorable price swings but may also help mitigate future losses. In addition to representation during negotiations, a real estate attorney also provides a host of other functions including but not limited to review of title searches, contract review, and deed filings with the state or county. When hiring an attorney it is best to check references and their practice expertise in order to ensure competent and reliable service.
How do I find out what my closing costs would be?
The two major expenses related to the sale of a house are: (1) bank related expenses and (2) title related expenses. Normally the buyer bears the heavier burden of paying these expenses.
Bank Related Expenses:
When applying for a mortgage, every buyer should receive a good faith estimate (GFE) no later than three days after a loan application. If not automatically supplied, then the buyer should make a request to the bank or lender to have one supplied under law. The GFE may be subject to change and does not guarantee closing costs. At the closing and occasionally prior to closing, the lender will also supply one or more HUD-1 statements. The lender should explain any discrepancies between the GFE and the HUD-1 and this also gives the buyer an opportunity to make sure expenses are in line with their agreed loan and purchase terms. A careful review and understanding of the HUD-1 is essential to every real estate transaction.
Some of the items included on the HUD-1 include appraisal, application fees, escrows, homeowners insurance, mortgage points, and various taxes. Costs of certain fees and taxes will depend on the size of the mortgage.
Private mortgage insurance (PMI) may be charged by a lender if a buyer puts down less than twenty percent of the purchase price. This insurance protects the bank in case the borrower is unable to pay back the mortgage. Mortgage points are normally charged by lenders as a fee for obtaining the loan. This charge may also appear as a mortgage broker’s fee and each point is one percent of the mortgage amount. The amount of points will vary upon the interest rate of the mortgage and are normally negotiable with the lender. The buyer should evaluate whether they want to pay more upfront through mortgage points or on the back end of the mortgage through higher interest rates. Lenders will also charge homeowners insurance to the buyer in case the house is damaged or destroyed while the mortgage is still under the bank’s name
Other costs include the lender’s attorney fees, which are normally charged to the buyer, service fees, document preparation fees, and other miscellaneous fees.
Title Related Expenses:
Title related expenses include title insurance, municipal fees, title searches, recording fees, and other taxes. Lenders will require that a one-time title insurance premium be paid to ensure the transferred title is good and marketable. The premium amount will vary depending on the sale price and the mortgage amount. The purchaser normally pays the title closer a gratuity of approximately $250. The seller typically pays the title closer a pick up fee of $250 to pay off any mortgage lien. Additionally a third-party will be hired to check municipal compliance of the property.
Additional costs which the buyer may bear include but are not limited to mansion taxes, their own attorney fees, appraisal fees, credit report fees, or inspection fees. The eastern Long Island townships and New York City charge separate transfer taxes. As a part of any negotiation, the buyer may request that the seller assume some of the costs in exchange as seller concessions. The purchase price is usually artificially inflated to cover the cost of the concession.
Costs that the seller typically bears include broker commissions, transfer taxes, and related existing mortgage pay off expenses. Realtor broker commissions are typically negotiated well in advance of a closing and are paid by the seller. Mortgage expenses may result if there is an existing mortgage on the real estate at the time of sale. The seller is responsible for extinguishing that mortgage and all related costs before title can be passed. Once the mortgage is satisfied the seller must obtain an original Satisfaction of Mortgage from the County Clerk and pay a nominal fee for filing the mortgage satisfaction.
How do I know there are no liens on my property?
The title company hired for a closing is responsible to check if there are any existing liens or outside interests against the property. The title report conducted by the title company serves as an essential step in any real estate transaction. The report will confirm if the owner can legally sell the property and if any outside interests exist against the property. A title report may include but is not limited to information on any existing housing and building violations, bankruptcy searches, certificates of occupancy, tax liens, existing covenants or easements, existing judgments, surveys, street maintenance reports, and/or patriot searches. Once the title report is concluded and returned, it should be reviewed carefully by all interested parties and their attorneys. If there are any deficiencies or follow ups needed then these issues should be addressed immediately before concluding the related transaction.
What is Title Insurance and do I need it?
Title insurance becomes mandatory if a mortgage is required and as stated above is a one-time payment made by the buyer. Coverage protects the lender up to the amount of the loan for any problems related to the title. Title related problems may include forged deeds, liens, or outstanding mortgages. Because a title report search is not a 100% guarantee of a clean title all lenders require title insurance. However, if no mortgage is required then a buyer does not have to purchase title insurance but it is strongly recommended that a buyer purchase an owner’s title insurance policy. This policy protects the buyer for the equity of the home and may be bought by either the buyer or the seller of the home as a guarantee of clean title.
The coverage period for title insurance stretches as long as the title stays with the owner, or until the mortgage is extinguished, depending on the type of policy. However, any claims must arise from the period of time occurring before the date the policy was issued. Title insurance does not cover actions affecting title which occur after the policy date. Additionally, refinancing will require new title insurance for the lender but may be subject to a discounted premium if requested.
What taxes am I responsible for?
The buyer typically bears the heavier tax burden. Tax escrow fees are charged by the lender as an upfront cost (up to 3/4 of the annual tax bill) to ensure tax obligations will be met. Although the bank will oversee that real estate taxes are paid timely, the buyer effectively bears the cost. A mortgage recording tax (MRT) is a one-time charge for recording the mortgage with the state. The MRT charge will vary by county but is usually about 1% of the mortgage amount. The MRT is also paid by the borrower and the amount depends on the size of the mortgage.
A seller is responsible for paying a transfer tax once the deed is recorded and title is transferred. The New York State transfer tax is two dollars for every five-hundred dollars of the sales price. Additional taxes may apply if selling real estate within a city.
Mansion Tax will apply if consideration for the home is $1 million or more. One percent of the sales price then becomes payable by the buyer. However, the seller may be contracted as the liable party if the parties so desire.
What is a possession agreement and why would I need it?
The two types of possession agreements are known as pre possession agreements and post possession agreements. These types of agreements allow for occupancy of one party who either no longer or does not yet possess title of the premises. A post possession agreement allows for the seller to remain in the premises for a specified period of time after the closing date. Typical reasons of post possession include storage needs or actual residency due to delays in relocation. A pre possession agreement allows the buyer to occupy the premises before the closing date. Reasons for this type of agreement may also result from storage needs or actual living needs.
When such situations arise, the first recourse should be to check if the closing date can be moved to satisfy each party’s needs. However if such scheduling is impractical or inconvenient than a possession agreement may be carefully tailored to allow a limited occupancy. In either case a license agreement is formed (NOT a lease), and the terms of the agreement should take into account every aspect this relationship in addition to liability considerations arising from third party interests, such as lenders. The time period of the agreement should be clearly stated and any deviation from the stated allowance should carry a specified per diem rate. Many possession agreements also mandate the creation of an escrow account and have a liquidated damages clause. Additional complications may arise if the premise is that of a condo or co-op and prior approvals may be necessary. Possession agreements commonly occur and if carefully drafted by an experienced real estate lawyer, heavy liabilities can be drastically reduced.
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