Overview of a Residential Real Estate Closing process:
A real estate transaction starts with the submission of an offer to purchase. Offers are usually drafted by realtors and not by lawyers and are usually not even reviewed by lawyers even though the offer becomes the guiding document in which the parties will look to for every problem and every solution. When the offeree (recipient of the offer) signs the offer as is, it would translate into acceptance and a binding contract (if not conditional) is created. When the seller/recipient changes the offer and sends it back, this constitutes a “counter-offer” and would start the process all over again.
The Agreement of Purchase and Sale should cover any and all exchange of mutual considerations. The seller advances title and possession in exchange for money. Money is regarded as consideration. The terms of the contract as well as any other representation, warranty and condition in the contract will be reviewed by the party’s lawyer and adhered to. The purchaser’s lawyer is responsible of investigating title and the additional aspects of the property known as “off-title” searches to verify that the buyer is essentially getting what he bargained for.
The Agreement of Purchase and Sale should stipulate the title search date. That is the last date in which the buyer’s lawyer may submit various requisitions to satisfy himself that title is clear and marketable and that any issues with title are resolved, or at least proper arrangement have been made to resolve those within a given timeframe. Title search should focus on the major and fundamental aspects of title transfer such as a confirmation that the seller indeed owns the property and that the property is not subject to any third parties’ rights which may prevent proper transfer. Such conflicting interests or right could be matrimonial interest, unregistered interests, liens of various nature or fraud. Title search should also focus on simpler issues as well such as the removal of expired notices registered on title, writs that may come up on the name of the vendor but are not really against him.
If title is indeed encumbered with issues, instruments or other matters on and off title, it may warrant the termination of the transaction. In such a case, the deposit at stake may be forfeited and damages may be claimed against any of the parties. Although it is the responsibility of the seller’s lawyer to rectify title and transfer it free and clear of any issues or encumbrances, it is the responsibility of the buyer’s lawyer to investigate, detect issues and properly requisition those.
Off title searches are equally important as on title searches, as those may reveal issues which must be addressed on or before closing. Tax search is a common search performed by many real estate lawyers, which may disclose any debts, arrears, penalties and interest owed by the seller to the city. Unpaid property tax debts or other debts to the City may become a lien on title which takes a higher priority even to secured lenders. A bank that advanced and registered a mortgage on title may be superseded by a property tax lien, hence the increased sensitivity to unpaid taxes.
Building and zoning search could reveal whether the property is zoned for its current use. A basement apartment may be illegal from the zoning standpoint as that area and property are zoned only for a single family residence and not for more than that. A basement apartment, even when constructed up to code and safety standards may still be illegal from the use standpoint. It is the responsibility of the buyer’s lawyer to advise and inquire with the purchaser whether such a basement unit exists on the premises. Open building permits and work orders may also be revealed in this search and should be addressed prior to closing. Otherwise, the cost of a final inspection and meeting the requirements to close an open building permit issued by the previous owner may fall on the shoulders of the current buyer.
Once these searches have been completed and requisitions submitted to the seller lawyer, due diligence must be exercised to verify that the seller does in fact deal with these deficiencies in a definitive manner.
After these due diligence matters have been cleared out, the final stages of the closing may be addressed. Buyer’s should arrange for a mortgage in due time and have their lender instruct the lawyer as to the terms of the subject mortgage. Once the buyer’s lawyer satisfies these terms and conditions, he may be cleared for the receipt of closing funds.
Client will usually be called to attend their lawyer’s office to sign their closing documents and deliver any items which are deemed deliverable to the other lawyer, such as keys for the seller and remaining shortfall of funds for the buyer.
On the day of closing, funds and closi9ng documents will be delivered to the seller lawyer and keys and signed seller’s documents delivered to the buyer’s lawyer. Once both parties have confirmed that they have everything required from the other party, they will usually sign the deed of transfer electronically and complete the transfer. Once completed, and assuming a Document Registration Agreement has been signed between the parties, the transaction is completed. Funds and keys may be released to the respective parties.