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Saturday, December 28, 2013

USING YOUR COMMON SENSE: COMMON ERRORS THAT BUYERS AND SELLERS MAKE AT A CLOSING

       In twenty plus years of practicing law, during which I have handled literally thousands of closings, I have seen almost everything.  What can be somewhat surprising then are how the same mistakes are repeated over and over again by the parties to a transaction.  Some of these mistakes can unfortunately be attributed to their attorney, but many are practical common sense considerations that get overlooked.  Such omissions or errors in judgment can either protract the closing, cause it to be adjourned or can result in the loss of a significant sum of money.  Thus, when getting prepared to attend your closing, you should keep the following two things in mind: 1) Use your common sense; and; 2) If you aren’t sure, ask your attorney.

The following is an inexhaustive list of common errors that parties to a transaction make when attending a closing:

NOT BRINGING APPROPRIATE PICTURE ID TO THE CLOSING

"Appropriate", in this context, simply means that the spelling of your name on your picture id should exactly match your docs.  The picture id that most people use is their driver's license.

     For a seller, their id should match how their name appears on the last deed of record or stock certificate, in the case of a Cooperative.  If you appeared in title under your maiden name, or a previous married name or using some variation of a middle name or initial, there may be an issue.  Your marriage license or divorce decree or birth certificate may be required.  For a buyer, their picture id should perfectly match how their name appears on the mortgage.  When representing a buyer, the first thing that I do is to show them their mortgage and confirm that their name is spelled correctly.  I will do the same thing later on with the deed.  It seems like the easiest instruction in the world - Please make sure that your name is spelled correctly - but  incredibly enough, people will sometimes fumble their own name.

       A few more considerations.  Make sure that your license has not expired or does not provide that your immigration status has already expired.  You should take a second form of id, although it doesn’t need to be a picture id.   Finally, when you are buying, how your name is going to appear in title is how your bank has it. Thus, when you apply for a mortgage, make sure that you convey to your mortgage broker whether or not you want to appear in title with a middle initial or name.   And, of course, as I said at the start, make sure that you have picture id that matches the way you want your name to appear in title.

NOT BRINGING THE RIGHT CERTIFIED CHECK

If you are buying, then you will most likely have to bring a certified check to the closing.  Indeed, the days of creative seller’s concessions are over.  The only person that you should listen to when obtaining such check, and determining the payee and amount of such check, is your attorney.  Don’t consult your mortgage broker, real estate broker or anyone else.  This is as common a mistake as I see and it is extremely frustrating because it is so unnecessary.  It has happened to me quite often and I see it when I represent sellers as well.   A buyer will get impatient waiting for a figure from their attorney and will instead take the advice of typically their mortgage broker, or sometimes their real estate agent, and bring a certified check that will invariably be less than what they needed to bring.  Or it will have the wrong payee.

NOT BRINGING A CHECKBOOK TO THE CLOSING

While I said above that you should ask your attorney any questions you have, I did also list “common sense” as the first guiding principle when approaching a closing.  Indeed, your attorney cannot tell you everything.   Bringing a checkbook to a closing is as plain and simple as concept as there is and you really shouldn’t need anyone to tell you to do so.  However, I hear the same common refrain from a perplexed buyer when they appear sans checkbook which is “You didn’t tell me”.  The usual response is “I can’t tell you everything” and that is correct.  Your attorney cannot tell you everything.   You must resort common sense.   By the way, even if you are selling, you should still bring your checkbook anyway.

FAILURE TO RAISE MATERIAL ISSUES

There are two basic legal concepts at play here, merger an survival, which are beyond the scope of this entry.   What they basically provide is that if the parties to a closing don’t’ fully deal with various issues, then they cannot be raised by the aggrieved party after the closing.   Here is a real world example.  You are buying a house and during your walk through inspection of the house (see below if you failed to use common sense and conduct one) you discover certain problems with the house.  This is not the time to be shy and keep it to your self.    You must raise it at the closing otherwise such issues are effectively waived.   Hence, if there is a plumbing leak and you don’t raise it at the table, then you will need to pay for a plumber out of your own funds after the closing instead of having the seller do so.   If the seller promised you a credit (did you get it in writing?) and you fail to ask for it at the closing table, you won’t be able to recover it in court afterward.

If an issue is raised at closing, then one of four things will happen as follows: 1) The seller will give a credit to the buyer; 2) The seller will escrow for the issue pursuant to a "survival agreement"; 3) The closing will be adjourned if the issue is serious enough and the parties cannot agree; or; 4) Nothing.   The seller will refuse to do anything and the buyer will proceed nevertheless.

In this context, there are two common misconceptions that I hear from buyers that should be corrected.
First, I hear clients tell me is that the seller must give them a warranty by law (no, this is only in the case of new construction which is purely new construction and a refurbishing) and that the seller is going to escrow money at the closing as a matter of course (no, this is only if you raise an issue that must be escrowed for and the seller dutifully agrees).

EXPECTING YOUR INTEREST RATE OF CLOSING COSTS TO CHANGE AT CLOSING

No matter what your mortgage broker says, it is extremely unlikely that your interest rate or bank closing costs will be reduced at the closing table.  With regards to the interest rate, I have only attended one closing where this happened, much to everyone’s shock and surprise.  Ditto for your bank closing costs.   Most likely, you will receive a bare promise that you will receive a refund check after the closing.  Why is this so?  With regards to the interest rate, for this to be done, besides qualifying for another rate, the documents, and figures, must be redrawn and redone.  That is not going to happen on such short notice.   With regards to your closing costs, a bank will usually net fund meaning that they cut will out their own costs first and then wire the rest of the funds to their attorney.  Thus, the bank attorney doesn’t have any extra money to give the buyer a refund back.  If your mortgage professional does promise you a refund after the closing, you should certainly get it in writing and have such statement be as detailed as possible, including whether the refund is coming from him individually or from the bank.

NOT CONDUCTING A FULL WALK THROUGH INSPECTION

Here is where common sense comes in again.  If you are buying a house, you should obviously go look at it the night before, or the morning of, the closing.   That is, unless the Seller is going to retain possession post closing and even then you should still go take a quick look.  This is the only way to ascertain if there are any issues so that you can timely raise them at the closing.  In the case the seller retains possession post closing, the parties will execute a survival agreement, which is referred to typically as a “Possession Agreement”, whereby the seller will deposit sufficient funds in escrow with their attorney to guarantee delivery of possession of the premises by a certain date in the condition required by the contract of sale.  After such date, the seller will pay a penalty.  During the post possession period, the seller will typically pay all of the purchaser’s carrying costs.

This potential omission dovetails nicely with error set forth above of failing to raise issues.   How can you raise an issue if you don’t even go look at the house?  Getting back to common sense again, this isn’t something that your attorney should have to tell you, but I have found that more than a few clients who had no idea that they should conduct such an inspection pre-closing.   .

NOT ALL OWNERS APPEAR AT A CLOSING OR APPEAR WITHOUT APPROPRIATE AUTHORIZATION

This is fairly obvious.   I have had closings where not all of the owners in title will appear due to various reasons.   Perhaps they are busy.  Perhaps they informally “gave” the house to the owner that appears.   Perhaps they figured that just one owner is enough.   Then there are the less obvious examples where a former owner is required by virtue of a grant deed in the chain of title.  The point simply is that all current owners must appear at a closing and if they can’t, then they must execute a Power of Attorney, if permitted.   While a Power of Attorney is typically permitted, in certain contexts it is not, usually where authority has already been delegated, it cannot be delegated again..

This error can also sometimes occur in the case of a corporation where the party appearing at the closing on the corporation's behalf selling a property fails to bring their corporate kit or proof that they have any authority to transact any business on the behalf of such entity.  The title company is not going to take you at your word and you must prove to them both that you are duly authorized to appear on behalf of the corporation and that all applicable taxes have been paid by such corporation.


Saturday, May 25, 2013

New and Improved ACRIS?

To paraphrase a song “Meet the new ACRIS, same as the old ACRIS’.   I am not sure what the point of the latest improvement was, but so far it seems more of a bother than anything else.  Indeed, while there may be some incremental improvements, it feels decidedly like the New Coke version of ACRIS. 

ACRIS is certainly a hassle to use, that is if you are trying to input documents.  Indeed, it is the very opposite of user friendly and a site like Titlevest’s ACRIS ASAP is an absolute godsend.  ACRIS is, however, quite useful if you are looking up information and trying to obtain some background about a particular property.  In this regard, it fulfills almost every promise that it makes.   As someone who practiced law before ACRIS, I can tell you that the answer to many questions posed from clients has gone from "I am not sure, let me have a title company research it.  Did you bring your checkbook?" to "Give me a minute and I will tell you".

The following list are the “enhancements” that the new version of ACRIS brings, as per their website:

1. NYC.ID : ACRIS now uses NYC.ID, the city-wide identity management system, for logging in. Existing NYC.ID accounts can be used to associate to existing ACRIS Customer Profiles. If a NYC.ID account doesn’t exist, a new NYC.ID account must be set up

2. Cover Page Property Type Validation: ACRIS will validate the property type selected on the Property tab against the RPAD Building Class database and thus reduce errors made in selecting the Property Type.

3. Cover Page MRT EIN.  Customers can enter the Employer Identification Number (EIN) for a cover page that has a Mortgage Recording Tax (MRT).

4. Cover Page Mortgage Refinance Indicator:  Customer can designate if the mortgage being recorded is a refinance.

5. Cover Page Popup Reminder When Modifying:  Reminds a customer when they are about to modify an existing cover page that has been saved to reprint the Cover Page.

6. Cover Page for Co-ops: Restricts the document types if the eTax transaction associated with the cover page has co-op properties only.

7. eTax Affidavit in Lieu of Registration Form:  Customers can create the HPD A ffidavit in Lieu of Registration  Form directly in eTax.

8. Revised TP-584 –The 4/13 version of the TP-584 just issued by New York State will be available. The City Register will continue to accept the 3/07 version until June 28, 2013.

9. Document Search for Document Type by Date Range and All Boroughs:  Customers can search for documents by date range of the last 31 days, and search across all boroughs.

10. Document Search for Co-op Units:  Search for documents by individual Co-op Apartment based on unit number.

11. Document Search Results Display Document Date: Search return will display Document Date for all ACRIS document searches.

See how clear and easy that all was?   I have also read that starting in July, you will be able to file documents electronically.

Sunday, March 3, 2013

ARE YOU PAYING YOUR INSURANCE PREMIUM TWICE AT A CLOISNG? (Our invetiable Sandy Post)

Everyone has their own Sandy story and the suffering that the hurricane wrought.   Let me share one with a decidedly real estate angle, a cautionary tale that confirms both the importance of respecting and following a long standing system and the tragic consequences of attempting to sidestep it and save what is essentially a nominal sum.

I received a panicked phone call from a former client that I had done a closing for in early 2012.  He was very upset because his house had been badly damaged by Sandy and his insurance company was nevertheless disclaiming coverage.  He couldn’t understand why and asked me to explain it to him.  They had given him a very basic and indisputable reason and it had nothing to do with his policy not covering hurricanes.

I soon learned that the reason the insurance company was disclaiming coverage was simple enough.   He had never been paid their premium for the first year, so there was not even a claim to be made as he had no coverage in the first place.   Unfortunately, this serves to highlight one of the most confusing aspects of closing costs and an issue that invariably comes up at most closings.

The general rules are simple enough but can be a bit confusing when put together and upon considering it further, one can understand why.   Most banks will escrow for insurance, as well as real estate taxes.   That is, they take one twelfth of the year payment for each every month, along with payment of your principal and interest as per an amortization schedule.  Thus, for most people, their monthly payment is comprised of three things: 1) Principal and interest; 2) One twelfth of their yearly real estate taxes; and; 3) one twelfth of the yearly insurance premium.  However, at the closing, a buyer must pay for the first year of insurance themselves and present a paid receipt, as well as an insurance binder naming the bank as an additional insured, to the bank in order to close.

Thus, the question that I am asked more often than not is as follows: If the bank is escrowing every month for insurance, then why am I paying for an entire year at the closing?  Am I not then paying it twice?   I typically will draw a diagram, which helps most people understand, but as that is not possible here, I will just given an explanation.

If a closing is occurring on March 10th, 2013, you will need to provide proof of payment to your mortgagee that you have paid insurance for the period March 10th, 2013 until March 9th, 2014.   If you don’t pay for such period, the bank does not have enough money to pay it, so you will not be insured for such period of time.  Your first payment is going to be May, 2013 at which time you will pay one twelfth of your year insurance premium.  Also, at the closing, the bank will have taken 3 or 4 months of your insurance premium as well.   You will then pay an additional one twelfth every month thereafter.  They will then use these funds to procure another year of insurance by making a payment by March 10th, 2014, which will be for the period March 10th, 2014 until March 9th, 2015.  So, when you make your first mortgage payment in May, 2013, it will actually be to help pay for insurance that covers a period almost a year down the road.

You may be thinking that the bank is gong to have a bit of a surplus as they are taking several months up front and will perhaps have fifteen months of insurance premiums to pay for another year.   This is absolutely true and normal.   The bank likes to have a cushion so that they will have enough in their account in case the premium goes up.   There is a limit on such cushion as is determined by something called an "aggregate adjustment".

Let’s turn back to my former client who unfortunately suffered substantial damage from Sandy.   Wasn’t he covered as his first year of insurance was paid?   Unfortunately no.   What happened was that a friendly insurance broker, as is often the case, gave him a paid receipt without him actually paying for the insurance policy.  The coverage, however, would only begin as soon as he made the payment.  The temporary receipt was given so as to facilitate the closing and on the assumption that he would actually would make such payment at the closing.   He never did and thus he was never covered and then had to pay for the damage out of his own pocket.  That was a very painful lesson to learn and one that should have been avoided.

Indeed, there is a system in place and the system works.    You can question it by thinking that it seems odd or whatever else because appearances may trick you.   Indeed, you may think you are paying double for your insurance.  You aren’t.  The best thing to do, like anything, is to keep asking questions until you understand.

Monday, October 8, 2012

THE HUD IS A COMPLETE WASTE OF TIME - BUT MOST PEOPLE STILL CONSIDER IT THE MOST IMPORTANT DOCUMENT FROM A CLOSING


I felt like I had been transported back in time last Friday as I went to a closing at 4PM on the eve of a holiday weekend.  Indeed, it felt like the “anything goes” days of 2007 again as I stepped into the office of a certain mortgage company on Long Island, who I certainly won’t name.   It won't matter, as I believe that they won't be in business for too much longer.

Upon walking in, I was greeted with a crowded waiting area where confusion reigned as people hurriedly passed by.  I remarked to the other attorney that I hadn’t seen such a sight in some time and that either the mortgage company was doing "something really right or something really wrong”.  It was soon apparent that it was the latter.

There were abundant and obvious clues that things were amiss.  First of all, our closing was delayed for more than an hour as the file was still in underwriting and the borrower had to satisfy the underwriter’s concerns.   As you may know, underwriting is one of the first things that should occur with a file and not something that still happening during the closing.

Next, the borrower paid the mortgage company two (2) points, which is a rare thing these days.   The bank attorney charged two (2) fees, a regular legal fee of $950 and then an additional fee of $350 to a different attorney to prepare closing docs.   This is like going to a restaurant and being charged on your bill for “food prep”; it just isn’t done and it isn’t appropriate.    I had no cause to protest as I represented the Seller.   The buyer's attorney remained silent and just shrugged his shoulders.

What I did complain about was that the  HUD, which was prepared by the overpaid bank attorney, failed to contain any of the adjustments nor any of the seller’s charges.  In fact, the seller’s side was remarkably left completely blank.  Perhaps the bank attorney required a third fee for actually preparing the HUD correctly? 

The HUD, while its recent revision has rendered it a somewhat silly and useless document, is still an important one, especially for someone like my client, an investor.  My client would take a copy of he HUD to his Accountant for the purpose of having his tax return prepared next year.  Thus, any errors on the HUD could result in my client paying higher income taxes.  Here, where the bank attorney completely ignored the seller’s side, something that I have never seen in twenty plus years, it could potentially result in the seller paying a grossly higher amount of income tax. 

Most people erroneously think of the HUD as sacrosanct, a perfect recitation of what occurred at the closing.  However, if you know what you are doing, if you have been in the industry for more than a week, you understand that the HUD is typically a complete waste of time.   This is even more so with the new version of the HUD, as I have previously written about.
 
To remedy the bank attorney’s error, I had to redraft the HUD by hand and the parties closed in escrow pending the bank attorney fixing the HUD to incorporate my changes.

I cannot fathom that this mortgage company will be in business much longer.  This is one more reason I wanted to make sure that whatever small involvement I had with them was completely correct.  Indeed, someone else may soon be performing an autopsy of their transactions.

Sunday, August 26, 2012

Taxation with representation (People don't vote with the same attitude as when they close)

I must necessarily be agnostic about politics, but I do have one quick observation.  It is one that I have expressed out loud at various closings and it usually generates ironic laughter.

 After having participated in over 5,000 closings to date, I have never met a Democrat at a closing.   Not a single one on either side of the table.  What am I referring to?  Taxes.  Simply taxes.   Curiously enough, it seems that no one at a closing wants to pay whatever taxes they are supposed to pay and always question why and how much they are paying.

Both sellers and purchasers express great upset and distaste for having to pay transfer taxes or a mortgage tax, with the spectre of capital gains, and other various taxes, looming.  This applies across all types of transactions, income levels and ethnicities.  However, when it comes to politics, people seem to have quite a different view of taxes apparently.  Indeed, we have gone from a revolution based on cries of “taxation without representation” to the malaise of “taxation with representation”.

I tell people all the time that based on their generous payment of taxes, when they leave the closing, they will find that the roads are brad new, if not made of gold.   That magically the school system will produce better results and that the world will be a better place to live. 

A couple of other notes.  Even if you are in the ranks of 47% that don't pay any income taxes, all applicable transfer taxes must still be paid.  Ditto for short sales.  Even though your mortgagee may be taking a proverbial "hair cut", NYC and NYS will receive the entire amount that they are due.   Like death, there are no exceptions to these transfer taxes.

Sunday, July 15, 2012

"If this had been an actual emergency, you would already be dead"

One of the most frustrating things about this business is having to deal with real estate management companies, otherwise known as a "Managing Agent".  I have found that with some notable exceptions, most are extremely difficult to deal with.   This includes the ability to reach a human being, who seem typically to be in short supply.

I have a situation now that is literally a matter of life and death that we reach someone at a management company.   We need to urgently secure an Assignment of Lease as our client, who is extremely ill (and who happens to be my father), is selling his business and thus needs to consummate the transaction on an expedited basis.  Unfortunately, the management company that we are dealing with is perhaps the worst of the worst, Urban American Management Corp.  For three (3) days we have been consistently trying to call them without any success whatsoever.  Indeed, we were only able to speak to a human being one time out of our numerous phone calls.  Of course, this person could not help us and instead directed us to someone's voice mail.

I just Googled this company and found six (6) reviews on Yelp.  Not surprisingly, all of the reviews are extremely negative and complain about how non-responsive the company is.   One reviewer put it best when he said "If I could give them Zero stars I would".

I tried what I hoped would be an effective end around.  I called them and pressed the key that they advise to use in case of an emergency.  Yes, you guessed it, I received voice mail.  Yes, if it had been an actual emergency, I would already be dead.

POSTSCRIPT:  As stated above, this post was actually about my father who was selling his medical practice.   The actual transaction was a lot more involved than was set forth above, but I wanted to add a postscript to further demonstrate how out of touch a Managing Agent can be.   We eventually ended up closing on October 15th, 2012 and my father passed away on October 26th, 2012.   What was the Managing Agent's reaction to my father's death?   They commenced an action to evict my father after his death.

Monday, May 28, 2012

HOW TO FORCE A SELLER TO SELL (The combined power of an action for specific performance and the filing of a lis pendens)

If you recall, I had written earlier this year about the perils of purchasing a REO and a client who had some problems in connection with their purchase of one.  It's time for an update and a discussion of various issues that have wide ranging application.
 
No good news yet, but a lot of news anyway, and most of it quite bizarre.  So, when I last left you, our clients had commenced an action for specific performance and had filed a lis pendens in connection therewith.  An action for specific performance is just what it sounds like, the Plaintiff purchaser sues the Defendant seller to force him to sell real property that the Plaintiff was trying to purchase.    What gives such action teeth is to file a lis pendens, which acts as a lien against the property and precludes the owner from selling it or even refinancing.   The lis pendens is valid for three years from the date of filing and it tells the world that there is an action pending which affects the use, ownership or possession of real estate.


How a lis pendens will work to thwart a seller from selling or refinancing is that it will be picked up by the title company on the day of the closing and the parties will be unable to close.  What occurs is that on the morning of a closing, a title company updates certain aspects of their title search and runs what is known as a continuation search or "contin" for short.   The contin is run to disclose any liens, judgments, mortgages, bankruptcies, outstanding taxes and water, as the original title search may be a few weeks or months old.   The contin will pick up any lis pendens that may have been filed in the interim.  (One thing that a "contin" does not check for is violations.  Of course, you don't get title insurance for violations in the first place.  More on that in a separate post in the future).


In our case, we filed our lis pendens on February 17th, 2012.  However, the bank then sold the property on February 28th, 2012.   Such closing was the product of a mistake and should have never occurred.  Indeed, the title company should have picked up our lis pendens on the morning of the closing and the closing should have been canceled.  However, they missed it.  When I called that title company and spoke to their clearance officer, he told me that they simply missed it.


This is one thing that people don't understand and something that I repeat over and and over again.  While there is a system in place, the system is not fallible.  No system is.    Mistakes are made and things are missed.  However, the system has safeguards.


So, what is going to occur now is as follows:  We are going to add the new buyer to our action, as they now own the house that our client is going to buy.  The new buyer is going to file a claim with the title company as they missed our lis pendens.   The underwriter used by their title company is going to try to work out a solution by perhaps paying our clients and settling with them.


If you are cynical, you may even say that it was best for our client that the sale took place and the title company missed our lis pendens.   However, our clients want the house and that is what an action for specific performance is designed to accomplish.