Buying or selling a home should not be an adversarial process. However, the idea that people should not get emotional about real estate is hard to adhere to when facing today’s economic and financial realities. Most Sellers’ homes are not worth as much as they used to be. Some continually believe it is worth more than the market dictates and “one day” it will get better. Meanwhile, buyers are seeking the best bargains out there. The combination of these factors (along with many others) has led to more drama and complications throughout the closing process than there should be.
As attorneys, we want to know what our client wants to get out of their property and to set their expectations on what the process is like. This aids us in making sure that the transactional process goes as smoothly as possible. In our practice, we have seen three general types of deals over the past few years:
1) A “Normal” Real Estate Transaction
For the purposes of this writing, we will define a “normal” real estate transaction as one between an individual seller and an individual buyer. Each party to the transaction has absolute power (sellers do not have to worry about bank approval to sell their property, buyers have cash or financial means to close, etc.) as to what they want the contract terms to be.
The Buyer generally has a five to seven business day window after the full execution and delivery of the contract to inspect the property and go over the terms of the contract with their attorney to ensure that they are getting the deal that they negotiated and are expecting. This time is referred to as the “Attorney Review and Inspection Periods” of the contract. It is during this time in the transaction where the tensions frequently run high.
Some buyers raise items which were brought up on the inspection report (usually done by a licensed inspector) to be fixed by the Seller or to receive a credit at closing in lieu of doing the repairs. Many contracts are terminated during this time because the Seller doesn’t feel like they have to make any repairs, while some Buyers don’t want to take the property subject to a major repair that they weren’t prepared to take on. Our job as attorneys is to make sure the parties are clear on how these issues are going to be remedied prior to closing.
Once both parties have agreed to the terms, it becomes the buyer’s obligation to secure financing before the closing. Due to the numerous conditions that lenders require, all parties shouldn’t expect a final approval (or a “clear to close”) for at least twenty one days after their loan has been submitted to their lender. As the closing date nears, both parties may have a logistical issue of moving. If the lender, even through their best efforts, cannot meet the deadline of the closing, it puts both parties in a bind because they are about to put all their personal items on moving trucks.
These delays, which appear close to the end of the transactional process, can instigate more tension between not only the parties but also the lenders, realtors, real estate brokers and attorneys. As many times as we see this occur, the finger-pointing generally ends once the deal gets to the closing table and the keys are tendered to the Purchasers.
2) Short Sale
A short sale is a transaction where the owner is selling the property for less than what they owe on the mortgage. The Buyer and the Seller enter into a contract but it is subject to the seller’s lender (or in many cases, multiple lenders) approval of receiving a payment at closing that is less than what is owed on the loan.
Purchasers and sellers should understand that the property is being sold in “as-is condition” which means that the condition of the property when the Purchaser agreed the buy the property will be the same as when they take possession (subject to normal wear and tear). The Sellers usually do not have the funds to pay their lender so they will not have the funds to make any substantative repairs to the property.
Semantically, both parties should not be prepared for a quick closing. Obtaining short sale approval based upon the original contract is difficult, time consuming, often frustrating, and not guaranteed. The short sale negotiation time can vary and can sometime take in excess of six months. Recently, short sale lenders are approving these files more quickly than they used to, but because of the massive amount of short sales being negotiated throughout the nation, there is a waiting period that doesn’t appear in normal deals.
Bank-Owned/REO Transactions
When a home goes into foreclosure, if nobody purchases it at a foreclosure sale, the property is considered “Bank-Owned” or “Real Estate Owned” (REO). In these types of transactions, the buyer is purchasing the property from a bank or a federal government entity who has taken the property back and owns the property. Because these sellers are selling the property to recoup as much as possible back on their initial investment (the mortgage), they typically don’t negotiate much on these types of contracts.
Purchasers of these properties should be aware that they take the property in “as-is condition” and most, if not all the terms of the contract are difficult to alter once you’ve agreed to it. If the property belongs to an association, the purchaser may also be responsible for up to six months of unpaid back assessments. Purchasers of these properties may also need to pay in cash, or be prepared to use the lender who owns the property to finance the transaction. Caveat emptor.
The advantages to buyers in these transactions are that they generally are getting a “great deal”, and that closing generally occurs in a short period of time. As long as you are a purchaser who is willing to concede on some contract provisions which would occur in a “normal” transaction (such as payment of transfer tax stamps, closing fees, title, etc), you can still be getting a great deal.
Whether you are buyer or seller, our firm would like the opportunity to help you through the process of a real estate transaction. From contract to close, we want to make sure you understand what you are buying or selling and the ramifications of the transaction. Please contact our office at 312-850-2622.
Post Written by Aaron S. Minkus, Esq.
