REAL ESTATE
1. Residential Sales
1.1. Contract of Sale.
1.1.1. The contract of sale contains all of the terms of the transaction, as well as the rights and obligations of both the seller and purchaser.
1.1.2. Among many other things, the contract includes the names and addresses of the parties, the subject property address, the purchase price, whether or not there is a mortgage contingency clause, the anticipated closing date, certificates of occupancy, household items/appliances included in the transaction, the condition of the property, and the realtor(s) used in connection with the sale.
1.1.3. The contract of sale is generally prepared by the seller's attorney and sent to the buyer's attorney for review. The usual practice is the use of a standard preprinted form supplemented by a rider and the legal description of the property. Upon agreement of terms, the buyer will sign the contract and return it with the downpayment check to the seller's attorney. It is customary that three or four separate copies of the contract will be signed. The seller will then sign the contract and return it to the buyer's attorney. The contract is not complete and the buyer's offer is not deemed accepted until the seller executes and returns the executed contract to the buyer's attorney. The seller's attorney generally acts as escrow agent and holds the downpayment in an attorney trust account until the closing.
1.2. Property Condition Disclosure Act (PCDA). New York Real Property Law §462 requires that every seller (subject to certain exemptions, such as estates and trusts) of residential real property must complete and sign a property condition disclosure statement and deliver it to the buyer prior to the buyer signing the contract. If the seller fails to provide the statement to the buyer, then the seller must give the buyer a $500 credit against the sales price.
1.3. Termite Inspection.
1.3.1. Purchaser generally has the right to have an inspection done for infestation, or damage, by termites or other wood-destroying insects in the house within a period of time agreed to in the contract.
1.3.2. It is usual that if infestation or damage is present, the seller will have the infestation treated and provide a one year guarantee against reinfestation and repair any damage.
1.4. Engineer's Report. Typically, the buyer will have an engineer inspect the house prior to signing a contract. The engineer will check the plumbing, electrical, heating system, appliances, roof, etc. It is a good idea to accompany the engineer during this inspection.
1.5. Additional Inspections. A buyer may also have the house inspected for underground storage tanks, mold, asbestos, animal infestation, radon, lead paint, private water systems (wells - physical condition, water quality and flow rate), water drainage around house, water leakage into basement, retaining walls and septic systems. A buyer may also ask whether there was any unusual prior use of the house or whether an unusual event (e.g. a murder or suicide) occurred at the house which may affect the desirability or resale value of the house.
1.6. The Note and Mortgage.
1.6.1. In the majority of residential real estate transactions, the buyer will obtain financing through an institutional lender, or, sometimes, a private lender.
1.6.2. The promissory note is the promise by the borrower/buyer to repay the loan given by the lender. The note sets forth the amount being borrowed, the interest rate, the type of loan (fixed rate, adjustable rate, interest-only, etc.), the term of the loan, and the repayment schedule.
1.6.3. The mortgage is a lien placed against the property by the lender as security for repayment of the loan. It is recorded in the office of the County Clerk or City Register.
1.6.4. In addition to the note and mortgage, there are several other documents the buyer will be required to sign at closing, including a Truth in Lending statement (TIL), RESPA Settlement Statement (HUD-1), and various other disclosures, agreements, and affidavits.
1.7. Title Insurance.
1.7.1. Upon receipt of a fully executed contract of sale, the buyer's attorney will order a title report. The title company runs searches of public records which discloses the legal owner of the property, any judgments or liens on the property, any municipal violations, any encumbrances such as covenants or restrictions, the accurate property taxes, including any tax exemptions that benefit the seller, and a search of the building department to determine if all structures on the property are in compliance with applicable building codes. In addition, searches are run for bankruptcies of any of the parties and if any of the parties' names appear on the registry under the Patriot Act.
1.7.2. Upon payment of the premium and search and recording fees at closing, the title company will issue a title insurance policy. This policy insures that the purchaser is the owner of the house, subject to any exceptions which may appear in the title policy. Unlike most types of insurance, the policy premium is paid once, at closing. Also, unlike most types of insurance, the policy is retroactive, only covering acts that occur prior to closing, not after the closing.
1.8. Certificate of Occupancy.
1.8.1. The contract usually states that the seller will provide the buyer with a certificate of occupancy ("C/O"). A C/O is the document issued by the appropriate building department stating that the house was constructed in accordance with the applicable building code and zoning ordinance.
1.8.2. The C/O search is essential, as it will disclose what the actual approved use of the property is, as well as if there are any open permits for work pending the approval of the municipality where the property is located.
1.8.3. Lack of a C/O, or the existence of open permits, should raise a red flag for a buyer. Most mortgage lenders will not allow a loan to close without a C /O or with open permits. A lender may allow the closing but require an escrow to be held depending on the type of structure at issue.
1.8.4. Further, by comparing the C/O to the actual structures on the property, a buyer is able to determine if work was done without a C/O being obtained. If this is the case, the structure may not comply with applicable building codes or zoning ordinances, and may need to be removed, thereby diminishing the value of the property. Your lawyer cannot tell you if the house has proper C/Os. This is something the buyer must do by comparing the existing structure(s) with the records of the building department or by hiring an expediter, drafting service, engineer or architect to perform that service.
1.9. Survey.
1.9.1. A title survey is a map of the property, completed by a licensed surveyor, that indicates the accurate dimensions of the property, as well as any structures located on the property. The survey will also indicate any encroachments onto the property by adjoining neighbors, and indicate easements or rights of way either burdening or benefiting the property.
1.9.2. Though not required, it is customary that the seller will provide the buyer with a copy of a survey of the property if one is available. If not, the buyer's title company will attempt to locate a copy either from a prior title company or from the municipality where the property is located. If a clear, legible copy of a survey is available, typically a survey inspection will be done, and any changes to the property made since the original survey will be indicated. This is generally a cheaper, faster option. However, these inspections are not conducted by licensed surveyors and are not exact, specifically as to structures, generally fences, that may not be accurately placed on the property lines.
1.9.3. The buyer may also order a new survey. Though an added expense, the new survey will accurately reflect the property lines and disclose any possible encroachments.
1.10. Homeowners Insurance (a/k/a Hazard Insurance or Fire Insurance).
1.10.1. Homeowners insurance protects against damage to the house, generally as the result of a fire. It also protects against the contents of the house (subject to limitations) and against accidents, such as slips and falls.
1.10.2. Typically, a buyer will obtain insurance coverage in either an amount equal to at least the amount required to rebuild the house or the amount of the mortgage.
1.10.3. Homeowners insurance does not cover flood damage. Depending on the location of the property, it may be advisable or necessary to obtain separate flood insurance.
1.11. Property Taxes.
1.11.1. Taxes are generally paid quarterly, semi-annually, or annually, depending on the municipality and county where the property is located.
1.11.2. The seller may be entitled to tax exemptions, such as the STAR, veteran's exemption, or senior exemption.
1.11.3. The buyer, however, may not be entitled to the same exemptions as the seller. Therefore, it is essential for the buyer to be aware what the actual property taxes are without exemptions, as that is a more accurate reflection of what the buyer will be paying.
1.12. Adjustments.
1,12.1. At closing, the buyer or seller will give or receive credit for items paid by the respective party. These adjustments are typically effective as of midnight the day before the closing.
1.12.2. Typical items to be adjusted include taxes, water, or fuel oil, though other items may be adjusted for as well.
1.13. Closing Costs. The fees paid in connection with the transaction are commonly known as closing costs.
1.13.2. Buyer Costs.
1.13.2.1. Bank fees generally include an appraisal, credit report, origination and/or discount points, commitment fees, underwriting fees, bank attorney fee, and other miscellaneous fees. If a mortgage broker is involved, there may be additional fees for its services.
13.2.2. Title fees generally include title insurance (owner and mortgage), municipal search fees, new survey or survey inspection fee, recording charges, and mortgage tax. It is also customary for the buyer to give the title closer a gratuity.
13.2.3. If desired or required by the lender, the borrower may set up an escrow account to pay taxes and/or insurance. The amount taken at closing depends on the annual amount of taxes and insurance and when the taxes and insurance are due.
13.2.4. Typically, mortgage loan payments are due the first of each month. In that case, the lender will collect interest from the date of closing through the end of the month, commonly known as "short term" or "per diem" interest.
13.2.5. Other costs may include the fee for the buyer's attorney, termite inspection, engineer's report, first year homeowners insurance, and possible other costs depending on the transaction.
13.2.6. On the east end of Long Island, certain towns (Shelter Island, East Hampton, Southampton, Riverhead and Southold) impose a transfer tax on the buyer known as the Community Preservation Transfer Tax.
13.3.7. Where the sale price exceeds $1,000,000 the buyer may also have to pay a New York State "mansion tax."
1.13.3. Seller Costs.
1.13.3.1. Realtor commissions, if applicable, for both the listing and/or selling agent.
1.13.3.2. New York State real property transfer tax (as well as New York City real property transfer tax if the property is in one of the five boroughs) is typically paid by the seller.
1.13.3.3. Title charges generally are limited to recording fees for satisfactions or releases, as well as a "pick-up" fee to the title closer for paying off any open liens on the property.
1.14. Condominiums.
1.14.1. For the most part, condominium units are treated the same as any other real property. There are some specific issues to address with condominiums, however.
1.14.2 Each condominium unit is typically assigned a percentage of the common elements of the condominium association. Common charges for the upkeep of the common areas, i.e. pools, stairwells, clubhouses, landscaping, etc., of the condominium association are allocated according to the common elements.
1.14.3. There is also a condominium declaration, which, among other provisions, will set out restrictions on an individual unit owner's use of his property. Ownership of the condominium unit is subject to terms contained in the condominium declaration.
1.14.4. The condominium association has an insurance policy to protect the physical structure of the unit. However, it is advisable for the unit owner to obtain additional insurance to cover the contents of the unit.
1.15. Cooperatives ("Co-ops").
1.15.1. Unlike a house or condominium, a co-op unit is not real property. A buyer purchases shares in a co-op corporation, and based on those shares, purchases the right to reside in a particular unit in a building, subject to terms contained in a proprietary lease.
1.15.2. In lieu of a mortgage, a UCC-1 is file against the shares of stock being purchased by the buyer.
1.15.3. Residents of a co-op unit are also responsible for maintenance charges for upkeep of the building.
1.15.4. Unlike with the purchase of a house or condominium, the purchase of co-op shares is subject to approval by the co-op board, which may be difficult to obtain.
1.15.5. The terms of the proprietary lease also typically require consent of the co-op board to make any structural changes to the unit.
2. Commercial Sales/Purchases. Commercial sales are in many respects the same as residential sales. The buyer and seller will both execute a contract of sale. Typically, the buyer obtains financing, although there is more often than in residential transactions an assumption of the seller's mortgage. Title searches and title insurance are customary as well. Typically a new survey is ordered, or a licensed surveyor will update a previous survey. C/O's are also essential as the buyer wants to be sure that his or her use of the building will conform will the approved use of the building by the municipality. There are additional issues present in commercial transactions, however.
2.1. Environmental Concerns. Typically, the buyer will conduct an environmental assessment of the property, commonly known as a Phase I Assessment, which will disclose whether or not there is sufficient reason to conduct further physical sampling of the property ("Phase II") to determine the existence and concentration of any hazardous materials on the property that must be disposed of/cleaned/fixed.
2.2. Leases. A buyer will take the property subject to any existing lease(s) encumbering the property. The buyer should carefully review the terms of the lease(s), for rents, terms, and provisions. The parties must also make arrangements for the transfer of the security deposits for tenant(s).