CONTRACT
What is “attorney review”?
When you have located the property you wish to purchase you will most likely present an offer to purchase by signing a Contract with your realtor which will then be sent to the Seller to sign. Once this Contract has been signed by all parties it is still not a binding contract, as contracts prepared by a realtor for 1-4 family residential homes in New Jersey must provide a three-day attorney review period. During attorney review, either party may review the proposed Contract with their respective attorney who has the right to propose changes to the Contract or cancel it altogether. Please note the law does not allow you to make changes or cancel the contract, as you may only do this through your attorney. It is in your interest to discuss the Contract with your attorney during the three-day review period so that your attorney may more effectively represent your particular concerns. If you choose to hire me, you should have the Contract faxed or emailed to my office immediately after it is fully signed so that we can begin the process.
When is attorney review over?
If neither party decides to consult with an attorney or if after consulting with an attorney neither party decided to make any changes to the contract then attorney review will automatically end at the end of the three day period. You count three days from the day attorney review begins and you do not count the day it begins. You do not count Saturday, Sunday or any Legal Holiday. However in most cases at least one party’s attorney will write an attorney review letter which disapproves the contract and requests changes. In this case, once the disapproval letter is sent the contract is no longer binding on the parties until both parties agree on the new terms in the attorney review letter. Often times, both parties’ attorneys will send an attorney review letter with proposed changes for the added protection of each party and until the parties agree to each other’s terms or reach some compromise, there is no Contract. This process could be resolved within the first day or it could take a week or longer. Remember that until attorney review is over you do not have a binding contract.
What happens to my deposit?
Usually, the Seller’s attorney requests to hold the deposit money, which will be deposited into their trust account until either the closing, when it will be applied towards the purchase, or until the Contract is legally cancelled in which case it will be returned to you. If there is a dispute as to whether you breached the Contract, the Seller may refuse to authorize the release of the deposit money which will result in the deposit money being held in trust until you and the Seller reach a settlement or until you or the Seller begin an action in court to determine whether there was a breach of the Contract and how much damages either party is entitled to. You should be sure to send in the deposit either to your attorney or the Seller’s attorney by the date specified in the Contract, which is usually 10 days from the date of the Contract. If you do not send in the deposit, you are in breach of the Contract.
MORTGAGE
What is the mortgage contingency clause?
The mortgage contingency clause makes the Contract contingent on your ability to obtain a mortgage loan. You have a contractual obligation to apply for the loan immediately after attorney review and comply with all of the lender’s requirements to approve you for the loan. If you cannot secure the mortgage loan by the contingency date despite your best efforts, either party may cancel the Contract.
What is a mortgage commitment?
The only document that satisfies a mortgage contingency is a Mortgage Commitment. A pre-qualification or pre-approval do not obligate a lender to make a loan therefore while they maybe a helpful indicator of a borrower’s ability to get an approval they are not an actual approval. Only a Mortgage Commitment without conditions (except minor routine conditions within the buyer’s control) will obligate a lender to make a loan and satisfy a mortgage contingency.
INSPECTION PHASE
What kinds of inspections should I perform?
Since a home is probably the largest investment you will make you should definitely conduct thorough inspections of your new property prior to purchasing. Remember, once you own the house you own any problems that come with it as sales in New Jersey are “as is” unless you are buying new construction. Aside from verifying the home is in good condition you need to identify any risks associated with the property. Unlike other investments you could actually take on liability from purchasing a home due to the condition of the home so you should find out everything you can about it during the inspection phase of the Contract. Such issues may include structural issues, mechanical issues, electrical issues, or environmental concerns such as underground oil tanks, septic tanks, mold or other contaminants if you fail to properly detect these problems through a home inspection. The kinds of inspections you should considering performing in addition to the standard general home inspection are: structural; termite; radon; septic (if applicable); and you should perform a sweep for an underground oil tank, which is the only way to know for sure whether there is a tank underground.
In addition to the general inspection offered by most home inspections, some buyers choose to use the services of professional engineers, who have a higher degree of expertise, to inspect their home which usually costs more but can be more thorough. It is also wise to have an environmental company do a property sweep to identify any potential underground storage tanks. If any tanks are located, if there is evidence of mold, or if a property is service by oil, septic or well, then a separate test must be performed for each of these situations. If the property is serviced by well water, then the Seller is required to have it tested and provide you with the results of the testing prior to closing.
Another inquiry you should be sure to make either prior to, or immediately after signing the Contract, is to find out whether the property is in a flood zone. You should contact the township to find out what information they can give you on this.
Lastly, as part of your due diligence and inspection phase, you should also visit the town building department when you have some time and pull a record of all permits on the house to make sure there are none missing or open/incomplete.
If defects are discovered during the inspections, can I cancel the Contract?
Nearly all Contracts contain an inspection contingency clause, meaning if you discovers defects which the Seller refuses to repair, you are entitled to cancel the Contract with a full refund of any deposits paid. Most Contracts give you 10 to 14 days from the date the Contract was signed or from the conclusion of attorney review to perform all inspections. Therefore, you must act diligently in scheduling all inspections you want to perform and be sure to forward the inspection report(s) along with your concerns to your attorney within the timeframe allowed so your attorney can negotiate repairs with the Seller. Usually, before you are allowed to cancel the Contract because of defects, you must first give the Seller an opportunity to fix the defects. Sometimes, instead of agreeing to making certain repairs, a Buyer and Seller agree to a reduction in the purchase price or a credit at closing which reduces the Buyer’s closing costs.
TITLE AND SURVEY
What is Title Insurance?
This type of insurance protects you as an owner against liens, judgments, easements and other loss of title that could occur due to negligence, mistake or even fraud. In almost any situation where there will be a mortgage on the property title insurance will be required by the lender. Even if you are paying cash, you are strongly encouraged to obtain title insurance. We recommend that only your attorney order your title searches and insurance on your behalf of. Never agree to allow sellers to order your title insurance. Title insurance rates and costs are generally the same from one company to the next as they are governed by the New Jersey Department of Banking and are based upon the purchase price and mortgage amount.
What is a survey and do I need it?
A survey is used to map out the exact location of all improvements on the property (which includes the house) relative to the perimeter of the property lines. It can also show the location of easements, setbacks and encroachments which can affect the use of your property. Occasionally you are able to use the Seller’s survey if they a recent original copy and are willing to sign an affidavit of no change. However it must be acceptable to both your lender and your title company. This can save you money but it is always best to obtain your own survey. Even if you do not intend to build on the property and it appears to be clear boundaries from the use of a fence, ect, you should always get a survey because without a recent survey, there is no way to know if there are any boundary issues and whether or not there are any restrictions on your right to use the property. A survey discloses any encroachments such as the neighbor’s shed being on your property or part of a structure you intend to buy actually being situated on the neighbor’s property. In order to have any recourse for any of the above, it needs to be discovered prior to closing. It costs between $600-$800.
CLOSING
Will I close on the Closing Date in the Contract?
Probably not. The date of the closing on the contract is an estimated closing date and should be used as a rough guideline. Please do not plan on closing on this particular date, as that is not always possible. Lenders take longer to process loans nowadays so there is a good chance your closing will be after the date on the Contract.
The estimated closing date can be extended by either you or the Seller without cause for up to fourteen days to accommodate delays, contingencies, and lender issues which are all common to any transaction. As soon as your lender is ready to close, they will notify you and your attorney at which point the closing date can be scheduled.
What do I need to bring to the closing?
It is impossible to determine the exact amount to be paid or received at closing until 3 days prior thereto. Lenders and others who must provide figures to us often do not do so until immediately prior to closing. About 3 days before closing, you will be provided with the exact amount you need to bring to complete the transaction and this amount will include all your closing costs outlined in the next section below. Funds will need to be in a certified check(s), cashier’s check(s) or bank check(s). You should also bring your i.d. including any alien cards, if applicable.
How much will my closing costs be?
One of the most underestimated factors during the closing process is the various settlement charges or closing costs. At some point during your mortgage application process, your mortgage company will provide a document to you entitled “Closing Disclosure”, which can be used as a rough guideline. Your closing costs will consist of the following:
Lender costs: You should speak to your lender to learn of the closing costs they will require you pay upfront or at closing;
Title insurance, including the costs for the title searches;
Survey: You will have to pay the survey fee at the closing.
Homeowner’s Insurance: your lender will require you purchase a 1 year policy at or prior to closing (if you pay for this prior to closing, make sure you provide your lender with the paid receipt and policy declaration page);
Condo/Townhome Association Fees: if you are purchasing a condo or townhome, you may be required to pay a three-month capital contribution as well as the first two-month’s maintenance fee. Certain associations also require a Buyer to pay for a Resale Statement which shows us what needs to be collected at closing from both parties. Lastly, depending on what day your closing occurs, you may be required to reimburse the Seller a per diem amount of the maintenance fees if the Seller had already paid for any days following the closing.
Taxes: In addition to the tax escrow your lender will collect at closing, which is usually two-three months of taxes, you may be required to reimburse the Seller a per diem amount of any taxes the Seller already paid for the days following the closing.
Recording Fees: You will have to pay a fee to record the deed and mortgage with the County, which is usually around $350.
My Fee: My fee will be included in the costs collected at closing.
What if something goes wrong with the property after closing?
In New Jersey, a purchaser’s acceptance of a deed for real property from a non-builder Seller is generally viewed by the Courts as satisfaction of all warranties and representations contained in the agreement of sale between parties. All warranties are “merged” into the deed; hence the doctrine’s name. Upon the purchaser’s acceptance of the deed at Closing, the deed thereafter solely determines the parties’ respective rights and liabilities. Thus, unless the parties’ specifically agree prior to closing that the Seller’s responsibility or liability for something “survives” closing, the Buyer has no legal recourse if something goes wrong after the closing. For this reason, you should be extremely diligent during the inspection phase and in conducting your final walk-thru prior to the closing to ensure the property is in the same condition as it was at the time of inspection and that any agreed upon repairs were made.
TAKING TITLE
There are three primary ways for multiple property owners to hold title: as ‘tenants in common’, as ‘joint tenants’, and ‘tenants by the entirety’. Where title is held as tenants in common, when one person passes away, the title and interest in the property passes on to their heirs or devisees of their will and does not automatically go to the other person sharing title. Where title is held as joint tenants, when one person passes away, the interest automatically passes to the other person with whom they shared title. Where title is held as tenants by the entirety, which is only available for married couples, the property automatically goes to the other person when one spouse dies similarly to joint tenants and with tenants by the entirety, one spouse cannot sell or give away their interest without the consent of the other, unlike joint tenants where one person can sell or give away their own interest without consent of the other.
In New Jersey, unless the deed specifically says the buyers are receiving title as joint tenants or tenants in common, two married owners will be considered tenants by the entirety. And where two unmarried persons take title, they are considered tenants in common unless the deed specifically states otherwise.
This description above oversimplifies the differences in the types of ownership, as their effect on inheritance and taxes can be complicated, depending on your particular situation. Thus, depending on your plans and intentions, you may be better off holding title differently and so you should see a tax professional and estate planning attorney before deciding the best way for you to hold title. Please let me know prior to closing how you would like to hold title.