Real Estate FAQ 3 – Documents

Let’s take a look at the documents that get a closing done.

The Deed

The Deed is the piece of paper showing you own the property. There are several different types of deed, here are the primary ones:

Bargain and Sale Deed.  The type commonly used in southern New York State.  It transfers the property to the buyer but the seller does not make any specific warranties that he actually owns the property.  However, it usually comes with a covenant that seller has not encumbered the property in any way other than what has been already disclosed.

Warranty Deed.  The type more commonly used in upstate New York.  In this deed the seller specifically warrants that he owns the property and will do whatever it takes to resolve any claims that come from the time he owned the property

Quitclaim Deed.  This is the most basic of deeds. The seller only states that he transfers whatever interest he owns in the property to the buyer.  There is no representation that he owns the property or that it doesn’t have any claims against it.

Executors/Administrators Deed.  This deed is used when the property owner has died and the executor or administrator has to transfer the property.

The Note

When you get a loan to buy property you sign a note.  This is the document that sets out the terms of the loan.  How much, the interest rate, when payments are due and so on.

The Mortgage

The mortgage goes along with the note.  It is the lender’s security.  The mortgage says, if you don’t pay the note, we can take the house and sell it to get our money back.

HUD-1  When you borrow from a bank, at the closing they provide you with a settlement statement known as the HUD-1.  This is a form set forth by the department of Housing and Urban Development.  It is supposed to make a clear report of where the money you borrowed went.  It is not always clear, but your accountant will want this come tax time.

Transfer Documents

Of course the government has to get involved. Each county in New York State keeps track of who owns real property in that county.  When you buy property you record the deed with the county clerk.  This puts everyone on notice that you own that property.  Likewise, the lender will record the mortgage to let everyone know that they have an interest in the property.

When you file a deed, it must have transfer documents along with it.

TP-584.  New York State Real Property Transfer Tax Return.  A seller must pay a transfer tax of $2 for each $500 of the price, (or 4%).  Id the property is more than $1,000,000, then the buyer also pays a “mansion tax” of %1.

If the property is in the five east end towns of Long Island there is a Peconic Bay Region Community Preservation Fund tax of 2% paid by the buyer.

RP-5217, often known as the reconciliation form.  This is a New York State form that reports the property and price.  The state uses this to keep track of property values in the state.

In New York City the closing documents are more complex and need to be filled out online through 

ACRIS, (Automated City Register Information System).

Thanks to the title company we have worked with for over 20 years, Abstracts Incorporated for the links to some documents.

Real Estate FAQ Part 2 - The Closing

What Happens at the Closing

The simple answer is that the Purchaser gives money to the Seller and the Seller gives a Deed to the Purchaser.

Of course there is a little more detail than that, so here goes.

Let’s start with who will be there.

1.       Seller and his/her/their attorney

2.       Purchaser and his/her/their attorney

3.       The Title Closer

4.       The Lender’s attorney

5.       Real Estate Brokers

6.       Representative from the Mortgage Broker

There are a few exceptions to this rule.  Sometimes the Seller can’t be there and his/her attorney is there on their behalf with a Power of Attorney.

It is possible there is no lender.

The Real Estate Brokers may not be there, but they usually are so that they can pick up their commission checks.

The Mortgage Broker may not be there.

Where will the Closing take place?

If there is a lender involved then the closing will most likely be at the office of the lender’s attorney since they have the money.

If there is no lender, most likely at the office of the Seller’s attorney.

But, it can be anywhere that is convenient for all parties.

How long will it take?

That is impossible to say.  I’ve never had a closing take less that one hour.  If there is no lender then the process is much quicker.  If there is a lender, the average is about two hours, but I’ve had them take three or four.

Why so long with a lender?

If there is a lender involved, the Purchasers have to sign all the mortgage documents and that is often a stack 2 – 3 inches high.  Their attorney will review each document and explain to the Purchasers and they will sign.  It can take a while.

Then once the papers are signed, the lender’s attorney must send some of them by fax or email back to the lender for approval.  So everyone has to wait.  Once the approval comes, the lender will send the money to the lender’s attorney’s bank account by wire transfer.  So everyone has to wait.  Once the funds are in the account, the lender’s attorney writes the checks, and if some need to be certified or bank checks, someone has to take then to the bank get them.  So everyone has to wait.  Finally they lender’s attorney can hand out the checks and the closing will be complete.

So what actually happens?

The quarterback of the closing is the title closer.  He or she will be responsible for making sure the deed is correct, filing the deed, mortgage, and transfer tax forms, paying off the Seller’s mortgage and issuing the title insurance policy.  They also act as Notary Public for the closing.

The Seller’s attorney will have prepared the deed and other transfer documents in advance and circulated them among the title company and other attorneys.  The Seller will sign the deed and transfer documents and they will be passed on to the title closer for approval.

Meanwhile the Purchasers are busy signing all their loan/mortgage documents.  The ones that need a Notary go to the title closer, then all go to the lender’s attorney.  The Purchaser’s attorney will be explaining all this paper to the Purchasers and making sure they sign in all the right places.

The Purchaser and Seller’s attorneys will discuss any other issues that may have arisen, like adjustments of property taxes, fuel oil and so on.  Any issues that may have arisen during the walk through, like damage or broken appliances or a mess left behind.  They will come to an agreement with their clients and discuss the final numbers for the closing.  Generally they will have worked this out in advance and there shouldn’t be any changes.

The lender’s attorney has been reviewing the loan documents and sent them off to the bank for approval, gotten approval and received the wired funds and cut the checks and gotten them certified.

The Sellers hand over the keys and garage door openers.

The lender’s attorney hands out checks to the Sellers, the title closer, and the real estate brokers.  If the Purchasers have brought additional funds, they hand that over to the Seller and the title closer gives the Purchaser a copy of the deed.  The original deed will be filed with the county clerk and returned to the Purchaser’s attorney.  The title closer will give the Purchaser’s attorney the title insurance policy.

Everyone shakes hands and the Closing is complete.

Real Estate FAQ Part 1

What follows are some of the more common questions we encounter in a residential real estate transaction. Whether you are buying or selling, these questions come up all the time. Remember, real property law is unique to each state and while the law is the same within a state, customs will differ in different regions of a state. The following answers apply to New York State and Long Island and New York City in particular.

Q. When will my closing take place?

A. The contract of sale you entered into generally has a closing date written in, but that is known as an “on or about date”. It is when the parties hope to get the closing done, but is not written in stone. Variables such as attorney and bank schedules, schedules of the parties, the time it take for the lender to be ready, moving truck availability and so on, all contribute to the uncertainty. As a general unwritten rule either party can postpone the closing date for 30 days without penalty. The courts have used the term “reasonable time”, most attorneys consider that to be 30 days, but there are plenty of situations where it could be much less. Once everyone is ready, the attorneys for the buyer, seller and lender will try to find a time when everyone can get together for the closing. They will set a date and time, usually 2 to 7 days in advance, so you may not have much notice.

Q. Do I need to be out of my house when the closing takes place?

A. As a general rule, yes. You are selling your house. As of the closing it is no longer yours, it belongs to the buyer and he/she expects to have a clean, empty house to move into. If this is a real problem for you, it is more and more common for sellers to stay in the house for up to 5 to 7 days after the closing to move out or complete the closing on the house they are buying. You will need to leave a deposit in escrow to guarantee that you will get out and cover any damage. You will be expected to pay the new owners carrying costs, i.e. their per diem mortgage interest, which can be in the $50 to $200 per day range, depending on the size of their loan and interest rate. Attorneys don’t like this, it makes them nervous to have things unsettled and we would generally prefer to postpone the closing for a few days.

Q. What is title insurance and do I need it?

A. Title insurance is insurance you buy when you purchase real property. It is a onetime payment and is good for as long as you own the property. How do you know the person selling you the property actually owns the property and has the legal right to sell it to you? How do you know there isn’t a mortgage on the property from the seller, or a judgment or lien against the seller that gives someone else rights to the property. You don’t want to buy a house and a few years later have a bank foreclosing on your property for a loan the seller didn’t pay. The title insurance company will research all the public records and provide you with insurance that the title is clean. If some question comes up down the road, the title company will cover it, up to the value of the house as of the day you purchased it (or current value if you choose the extra coverage). All attorneys will tell you to get “fee insurance”, coverage for your ownership interest. All lenders will require you also get “mortgage insurance”, separate coverage for the lender’s interest in the property. So yes, you need title insurance.

Stupid Lawsuit of the Day

Extra! Extra! Read all about it, Crunchberries are not real fruit. Apparently Janine Sugawara of Southern California, has been eating Cap’n Crunch with Crunchberries cereal for four years thinking they were actual berries! Imagine her surprise when she discovered they were just cereal shaped into little balls and dyed in colors not known to nature. Well, she was mad enough to sue Pepsi, the owners of Quaker Oats who makes the awesome cereal. Sugawara v. Pepsico, 08-cv-01335, United States District Court for the Eastern District of California

Actually she and her attorneys Howard Rubenstein of Aspen, Colorado and Harold Hewell of San Diego, California were more likely enticed by the combination of class action lawsuits and California’s pro-consumer protection laws. They sought class status on behalf of all California consumers who purchased Crunchberries and alleged misrepresentation of the nature of the crunchberries on the cereal’s packaging, false and misleading advertising and labeling. As damages they wanted Quaker Oats to return all the money they made by selling crunchberries, punitive damage of an unspecified amount and attorneys fees. Ah, the attorneys fees. That’s the insidious part of class action lawsuits. But that is a topic for another blawg entry.

Thankfully in this case the judge wouldn’t stand for any nonsense. Defendant made a motion to dismiss the complaint and it was granted. The judge pointed out, “this court is not aware of, nor has Plaintiff alleged the existence of, any actual fruit referred to as a “crunchberry.”” The Court concluded its decision by denying the Plaintiff the opportunity to amend her complaint by stating “The survival of the instant claim would require the Court to ignore all concepts of personal responsibility and common sense. The Court has no intention of allowing that to happen.”

Good job Judge Morrison C. England, Jr. Still the entire process took over a year and undoubtedly Quaker Oats had to spend tens or hundreds of thousands of dollars defending this nonsense, the actions of a greedy lawyer and a greedy plaintiff.

New Power of Attorney Law

New York has a new Power of Attorney law. The state legislature amended the General Obligations Law to provide an entirely new form with new execution requirements for powers of attorney that goes into effect on September 1, 2009.

A Power of Attorney is a document that appoints another person (the agent) to act on behalf of someone (the principal) in certain enumerated areas. A Durable Power of Attorney remains valid even if the principal becomes incapacitated. This is ideal for estate planning and elder care. It allows a trusted person to take care of the principal’s affairs without a long and costly guardianship proceeding.

The new law creates a new form, new execution requirements and new powers. Most importantly, the new form requires that both the principal and the agent sign the form and that their signatures be notarized. They do not have to sign at the same time, but the form is not valid until both have signed.

If the principal wants the agent to have the power to make major gifts he must execute a separate Statutory Major Gift Rider (SMGR). A principal may want this to continue a plan of gift giving for estate planning and estate tax reduction.

Acceptance of the form is mandatory. In the past many institutions like banks and brokerages had their own forms that they insisted on. They cannot require that anymore and must accept the new form.

The new form is durable unless otherwise indicated on the form.

This new POA law provides some protections to the principal from abuses by the agent. It imposes a fiduciary relationship on the agent which carries a much stronger requirement of honesty on behalf of the agent. There are also rules regarding increased reporting and accounting by the agent.

While older powers of attorney will remain valid, they will lack some of the more exacting features of the new forms. We strongly urge our clients to review all powers they may have and we will be pleased to assist you in determining whether a new form is necessary.

Is Your Company's Address Up To Date?

Do you have a corporation, limited liability company, partnership or other entity filed with the New York State Secretary of State? When the entity was formed you had to appoint the Secretary of State as your agent for service of process. Every entity has to do this. As part of this you listed your address for the Secretary of State to mail process.

What is process? Process in this case refers to a Summons and Complaint issued when someone sues you. How do they commence a lawsuit against a corporation, LLC or other similar entity in New York? One way is to serve the Secretary of State as agent for the Defendant. The Secretary then mails the Summons and Complaint to you at the address you have on file. That is all it takes to commence a lawsuit against your company.

What if you have moved? Unfortunately many companies move and forget to update their address with the Secretary of State. When the Secretary mails process to your old address you don’t receive it, but the lawsuit is still effective and you are in court and don’t even know about it.

This has some serious implications. First, if you don’t respond, the Plaintiff can very easily get a default judgment against you for the full amount they claim in their suit. A decent lawyer can usually get that default vacated, but it takes time and money.

Of a potentially more serious note is an issue where you have insurance that might cover the claim by Plaintiff. Your insurance company will pay for your lawyer and defense and pay for judgments against you up to the limits of your policy. However, you are obligated under the terms of your insurance policy, to notify the insurance company of any lawsuits as soon as practicable. Check your policy for the exact language. A recent decision out of the New York Court of Appeals* holds that any delay in notifying your insurance company that results from you having an invalid address with the Secretary of State is a vaild reason for your insurance company to deny coverage of the claim. Now you are all alone in court facing thousands of dollars in legal fees and the possibility of a ruinous judgment, when all along you thought you had coverage. The Court admits that its decision leads to some harsh results, but they feel their decision will encourage companies to keep their information up to date.

The New York State legislature has amended Insurance Law section 3420 to tip the balance more towards the insured, but it only effects policies issued after January 17, 2009.

Take a moment to check your details with the Secretary of State’s office. You can visit their website and search on your name. If the address is old and no longer valid, we can help you update it, or you can do it yourself, the details are on the Secretary’s website.

* Briggs Ave. v. Insurance Corp., 11 N.Y.3d 377 (2008)

Estate Planning Essentials

Basic documents for Estate Planning.

There are five basic documents everyone should have for their estate plan. You don’t need to be rich to need to plan for what happens to your property after you are gone.

First and foremost is the Last Will and Testament. Your Will states what you want to happen to your property when you die. If you don’t have a will, New York State decides what happens and in all likelihood, it will not be what you want. If you want to see the state statute see EPTL 4-1.1 A will can be as simple as leaving everything to your spouse or as complex as you can imagine. The important thing is to have a will.

We have often been asked if the will kits you can buy in the store or online will work. Yes, they may work if you follow all the rules New York requires for the proper form and execution of a will. If you do it wrong, the court will reject it and your estate will be distributed according to the NYS intestacy rules shown above. In addition, you are missing out on the knowledge of an attorney who knows the legal and tax implications of various ways to distribute your assets.

Next is the Health Care Proxy. The Health Care Proxy appoints someone to make health care decisions for you if you become unable to make those decisions. Other states may refer to this as a Health Care Power of Attorney, don’t be confused, in New York it is call a Health Care Proxy. You should discuss with your Proxy your wishes and desires as to what sort of care and treatment you want. The Health Care Proxy should be given to your doctor so it can be kept in your chart available for the future.

A document that coordinates with the Health Care Proxy is a HIPAA Release. HIPAA is a federal law which prohibits your doctor from giving access to your medical records to anyone unless they have your permission. A HIPAA Release will allow your doctor to share your medical records with your Health Care Proxy and make it easier for them to make care decisions

Working along with the Health Care Proxy is the Living Will. The Living Will gives instructions to your doctor and Health Care Proxy on end of life decisions. It states whether you want life support and if so, to what extent. It is important that you discuss this with your Proxy and make sure they are comfortable with carrying out your wishes.

Finally there is a Durable Power of Attorney. A Power of Attorney appoints someone to act on your behalf for things like bank accounts, paying bills, dealing with legal matters. It is a very important tool should you become unable to make decisions or if you need help with day to day chores. It goes without saying that you need to appoint someone you trust implicitly since they will have your authority in advance to manage your property. The New York State law regarding Power of Attorney will change effective September 1, 2009. More about the change in a future blawg entry.