Sunday, September 3, 2017

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.

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 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.

Friday, September 1, 2017

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.