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Real Estate Law Blog

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Purchaser's Closing Costs

Posted on January 30, 2012 at 12:41 PM




Purchasing a home involves more out-of-pocket expense than just the down payment. There are also closing costs to pay for items such as title policies, recording fees, inspections and fees that a lender charges for obtaining a mortgage. The following schedule is an estimate of the closing costs that a buyer can typically expect to pay at closing.


PURCHASER’S REAL ESTATE CLOSING COSTS:
         
Taxes: (if applicable)

Mansion Tax                                                  1% of purchase price when $1,000,000 or over

Mortgage Recording Tax (NYC)
• Sales under $500,000                                  1.8% of entire mortgage
• Sales $500,000 and over                             1.925% of entire mortgage

Note:  Click here to view table of mortgage recording tax amounts by county. Mortgage recording tax does not apply for cooperative apartment purchases.


Mortgage Associated Fees:

Origination Costs – points                             varies, usually 0 - 3% value of loan

Appraisal                                                        $350 (approx)

Underwriting                                                  $450 (approx)

Processing                                                      $450 (approx)

Application                                                     $350 (approx)

Bank Attorney                                                 $850 + up

Real Estate Tax Escrow                                  2-6 months
                                      
Short Term Interest                                         varies, depends on the day of the month in which the closing occurs


Title Insurance Fees

Owner and Lender Title Policies                     5% - 7% of purchase price (approx)

Municipal Searches                                          $450 (approx)

Deed Recording                                                $375-750 (approx based on county)

Real Estate Taxes                                             varies

Note: Purchasers of cooperative apartments usually do not purchase title insurance, and instead pay for a lien search which is approximately $450.  However, see our blog entry, Co-op Buyers Should-Consider Purchasing Title Insurance, which explains particular situations in which it is advisable for purchasers of cooperative apartments to purchase a type of title insurance policy called an Eagle 9 policy.


Homeowner’s Insurance:

Policy                                                                varies depending on lender's required coverage and purchase price


Home Inspection:

Home and Termite Inspection                           $450 (approx)


Legal Fees:

Purchaser's Attorney                                        fee varies, but usually flat-fee basis (consult with your attorney)             


To speak with an experienced real estate attorney about a closing, call us at (516) 314-8433.  To learn more about our real estate closing services visit us at: www.jreardonlaw.com/Real-Estate-Closings.html

Seller's Closing Costs

Posted on January 29, 2012 at 9:34 PM



The following schedule shows estimated closing costs
when selling real estate.  These costs are just estimates
and should be reviewed with your attorney.


SELLER’S REAL ESTATE CLOSING COSTS:

Transfer Taxes:

NYS Real Property Transfer Tax                    0.4% (.004) of purchase price

NYC Real Property Transfer Tax
(Usually paid by Seller,
 except on new contruction sale)
• Sales under $500,000                                    1% of purchase price
• Sales $500,000 and over                               1.425% of purchase price

Non-resident Gains Tax Withholding
(out of state seller)                                          8.82% of gain
 
Non-US Resident (FIRPTA)                            10% of price withheld or paid


Mortgage Payoff Fees: (if applicable)

Pick-up/payoff fee                                           $150-$250 each

Recording Satisfaction                                    $100-$300 each


Real Estate Broker Fee:

Commission                                                    6% of purchase price (negotiable)


Legal Fees:

Seller's Attorney                                             fee varies, but usually flat-fee basis (consult with your attorney)



To speak with an experienced real estate attorney about a closing, call us at (516) 314-8433.  To learn more about our real estate closing services visit us at: www.jreardonlaw.com/Real-Estate-Closings.html


Know Your Rights Under the Home Equity Theft Prevention Act ("HETPA")

Posted on December 2, 2011 at 11:17 PM
The Home Equity Theft Prevention Act ("HETPA") became effective on February 1, 2007 and now governs certain sales of homes in foreclosure or default.  If you are planning to sell a home in foreclosure or default, you should be aware of your rights under the Act, and know what to expect from a legitimate buyer.  The Home Equity Theft Prevention Act was passed in response to recent scams which targeted homeowners in financial distress (often elderly or unsophisticated homeowners).

Home equity theft occurs when investors approach a vulnerable homeowner in foreclosure or default and agree to pay off the arrearage owed on the mortgage by the homeowner, and in return, require the homeowner to sign the deed over to them. Often the homeowner through a reconveyance agreement is allowed to continue to live in the property renting it from the investor with the promise that they can buy back the property at some later date. The reality is, however, that the homeowner is often evicted and the investor sells the property to a third-party, keeping all the equity. In other instances, the investor cashes out on the equity in the home with a new mortgage– usually through a cash-out refinance, leaving the homeowner with a mortgage balance larger than the previous and a monthly payment that is completely unaffordable.


Definitions and Covered Transactions

Under the Act, a Covered Contract is defined as a contract or agreement between an Equity Seller and an Equity Purchaser.  The homeowner or property owner at the time of the equity sale is referred to as the Equity Seller.  An Equity Purchaser is defined as any person who acquires title to any residence in foreclosure or default.

Only transactions involving an Equity Purchaser are covered by the Act.  Most real estate transactions between sellers and Purchasers, however, are not covered by the Act because the law excludes from the definition of Equity Purchaser those who purchase a property as follows: 

•  To use, and then actually uses, the property as his/her primary residence;
  By a deed from a referee in a foreclosure sale;
•  At any sale of property authorized by statute;
  By order or judgment of any court;
  From a spouse, or from a parent, grandparent, child, grandchild or sibling of such person or such person’s spouse;
  As a not-for-profit housing organization or as a public housing agency; or
  As a bona fide purchaser or encumbrancer for value (e.g. a lienholder)


Contract Requirements

In order to protect homeowners, the contract of sale between an equity seller and equity purchaser must meet the following requirements: Contract must be fully completed (i.e., no blank spaces); Font size of the printed contract must be equal to at least 12-point bold type; If Spanish is primary language of the seller, the agreement must be provided in English and in Spanish; Name, address and phone number of the buyer; Address of the subject property; Consideration to be paid; List of all services that buyer has promised; Terms for payment of the consideration; Time at which possession of the property must be surrendered; Terms of any rental or lease agreement; Terms of any reconveyance agreement; Notice of right to cancellation in the immediate proximity of signature line and must be printed in 14-point type on the agreement; and Notice of cancellation form to be attached to the contract.


5-Day Right of Rescission

The Act also gives the equity seller a five-day right to cancel the contract.  Once an equity seller cancels the contract, the equity purchaser must return all contracts and other documents signed by the seller within 10 days of cancellation.  Cancellation of the contract releases the equity seller of all obligations to the equity purchaser.


Remedies

2-Year Right of Rescission - Generally, a violation of the contractual requirements of the Act makes the conveyance voidable and may be rescinded by the homeowner within 2 years of the date the deed was recorded. The statute then gives the purchaser (or its successor) twenty days to reconvey the property on the condition of repayment of any consideration paid to the seller. 

6-Year Statute of Limitations - Within 6 years, a homeowner may bring a cause of action for damages or equitable relief, treble damages and attorneys fees and costs for a violation of HETPA.  Additionally, an equity purchaser can be held criminally liable for violations of the law as either a Class E Felony or a Class A misdemeanor and subject to a fine of not more than $25,000.00.


For more information, see New York State Banking Department pamphlet on the Home Equity Theft Prevention Act.



Zoning Limitations: The Need for a Zoning Variance

Posted on November 19, 2011 at 11:26 PM
Zoning  is a device of land use planning used by local governments. Zoning may be use-based (regulating the uses to which land may be put), or it may regulate building height, lot coverage, and similar characteristics, or some combination of these.

The primary purpose of zoning is to segregate land uses that are thought to be incompatible. In practice, zoning is used to prevent new development from interfering with existing residents or businesses and to preserve the "character" of a community or neighborhood. Zoning is commonly controlled by local governments such as counties or municipalities.

Most zoning systems have a procedure for granting variances (exceptions to the zoning rules), usually because of some perceived hardship caused by the particular nature of the property in question.

Variances enable a property owner to utilize the property in a manner that is not allowed by the local zoning laws.  To obtain a variance, a property owner must establish difficulties or "unnecessary hardship" in complying with the zoning law. 

The two most common types of zoning variances are a use variance and area variance.


Use Variance

A use variance allows a property owner to use the property for some purpose prohibited by the local zoning laws.  When a use variance is sought, the applicant demonstrates "unnecessary hardship" by establishing that:

          a.  the land cannot yield a reasonable return if used for zoned purposes;

          b.  the property owner's difficulty is due to unique circumstances and not to general conditions throughout the           
               neighborhood (the hardship must be unique or peculiar to the property for which the variance is sought); and

          c.  the sought-after use will not alter the essential character of the neighborhood.

Although it is permissible for a municipality to impose conditions on a use variance, the conditions must regulate the property use and not the activities of the applicant (property owner).


Area Variance

An area variance enables the property owner to maintain, build or subdivide on a parcel smaller than that required by the zoning law.  To obtain an area variance, the property owner need only show "practical difficulties" in complying with the law.

Even though self-creation of a difficulty is certainly a factor to be taken into account in considering an application for an area variance, it is less significant a consideration in those cases than in applications for use variances.  It is not the sole determining factor, and a finding of self-created hardship, normally should not in and of itself justify denial of an application for an area variance.

See New York Times article by Amy Gunderson, "HOME AWAY: When You Need a Zoning Variance", for further discussion on zoning variances.



Co-op Buyers Should Consider Purchasing Title Insurance

Posted on November 10, 2011 at 6:51 PM
It is a commonly accepted practice for home buyers to purchase title insurance.  Title insurance provides buyers, and their lenders with coverage up to the full purchase price of a home in the event a valid title claim is instituted against the property.  Buyers of co-ops, however, rarely purchase title insurance.

Since co-op buyers are not purchasing real estate, but rather shares in a corporation – accompanied by a proprietary lease that gives the buyer the right to live in the co-op, traditional title insurance would not cover the buyer's ownership interest in the shares.  Consequently, the Title Rate Service Association (or Tirsa) created an endorsement to the standard title insurance policy that would cover co-ops.  The Tirsa endorsement is known in the title industry as "leasehold title insurance."  This endorsement insures the buyer's interest created by the proprietary lease.

Just as title insurance provides protection in the event that the title search conducted before closing failed to uncover a valid lien against the real property, the leasehold endorsement provides similar protection in the event the lien search failed to uncover liens against the seller of the co-op.  However, the Tirsa endorsement never really caught on with co-op buyers.

As an alternative to the Tirsa endorsement, the State Insurance Department, approved the Eagle 9 policy for sale by title companies to co-op buyers.  The Eagle 9 – unlike the Tirsa policy, is not a real estate policy with an endorsement.  Rather, it is a policy specifically designed to insure the buyer's interest in the co-op.  The Eagle 9 policy insures the buyer for loss and legal expenses resulting from claims arising against previous owners of the co-op.

Additionally, the Eagle 9 policy is significantly less expensive than the Tirsa policy.  

Here are some instances where a co-op buyer should consider purchasing an Eagle 9 policy:
  • Seller is in bankruptcy
  • Buying from an estate or heirs of a deceased seller
  • Buying a foreclosed co-op (REO)
  • Federal tax lien filed against seller in another state (will not be found by a typical search in New York)

Considering the substantial investment involved in purchasing a co-op, the cost of the Eagle 9 policy, which is far less than title insurance for real property or the TIRSA endorsement, is a worthwhile outlay in order to protect your investment and give you peace of mind.



Why You Need Title Insurance

Posted on October 16, 2011 at 2:18 PM
Buying a house may be the most significant and expensive purchase you will make.  When you make such a significant investment in the purchase of a home, how can you be sure that there are no problems with the home's title?  Problems with the title can limit your use and enjoyment of the property, as well as cause you financial loss.  This is why you need title insurance.   

Title insurance will pay for defending you against any lawsuit attacking your title, and will either eliminate title defects or pay your financial losses, up to the amount of the policy.  Your title insurance policy remains in effect as long as you, or your heirs, retain an interest in the property.  Title insurance will give you the peace of mind in knowing that the investment that you have made in your home is a safe one.

There are two basic types of title insurance: Owner's title insurance, called an Owner's Policy, and Lenders title insurance, called a Loan Policy.  Most lenders usually require a Loan Policy when they issue you a mortgage. The Loan Policy is usually based on the dollar amount of your mortgage. It only protects the lender's (or any subsequent lender to whom the loan may be sold or assigned) interest in the property should a problem with the title arise. It does not protect the buyer.

Only an Owner's Policy fully protects the buyer should a covered title problem arise with the title that was not found during the title search.  The Owner’s Policy is ordinarily issued in the amount of the purchase price and protects the homeowner from the potential risks which can arise. It is purchased for a one-time fee at closing and lasts for as long as you or your heirs have an interest in the property. 

Title insurance is issued after a careful examination of the public records. Prior to issuing its title policy, a title company will perform a detailed search of the property records going back many, many years in search of title defects.  Sometimes however, title problems occur that could not be found in the public records or are inadvertently missed in the title search process. Even the most thorough search cannot absolutely assure that no title defects are present, despite the experience of professional title examiners. In addition to matters shown in the public records, other title problems may exist that cannot be disclosed in a search.  An Owner's Policy of title insurance will help to protect you in these events.

Title insurance protects against the following common hidden risks just to name a few:

  • Errors or omissions in deeds
  • Mistakes in examining records
  • Forgery
  • Undisclosed or missing heirs
  • False impersonation of the true owner of the property
  • Instruments executed under invalid or expired power of attorney
  • Mistakes in recording legal documents
  • Misinterpretations of wills Deeds by persons of unsound mind
  • Deeds by minors
  • Deeds by persons supposedly single, but in fact married
  • Fraud
  • Liens for unpaid estate, inheritance, income or gift taxes

Every homeowner must, however, carefully read the insurance policy. There are numerous coverage exclusions contained in an owner’s policy, such as:

  • Defects, liens or adverse claims not known to the insurance company but known to the insured and not disclosed in writing to the company prior to inception of the policy;
  • Taking of the property by a government (eminent domain); 
  • Any law restricting or relating to the use or occupancy of the property; the subdivision of land; environmental protection, and
  • Defects, liens, encumbrances, adverse claims, or other matters attaching or created subsequent to the date of the policy.

There are a number of such exclusions from coverage, and all buyers should discuss these issues with their attorney before going to closing.



The Right Of First Refusal In Condos

Posted on October 16, 2011 at 2:17 PM
Anyone who has been in the market to purchase either a condo or co-op is acutely aware that it is easier to buy or sell a condominium than a co-op because transferring ownership of a co-op almost always requires the consent of building's board, while the transfer of a condo usually does not.

Since a co-op is not real estate, the board can control who lives in the building by controlling who is allowed to become a shareholder and proprietary leaseholder.  So long as the co-op board does not violate laws against discrimination, it is free to grant or withhold its consent to the sale "for any reason or no reason at all."

A condo, however, is considered to be real estate.  Under centuries-old English common law, it is not permissible to impose an "absolute restraint on alienation" when transferring ownership of real estate to someone else.  In other words, if the governing documents (bylaws) that create a condo allow the board to prohibit a unit owner from selling his or her apartment, that prohibition would most likely be considered an impermissible restraint on alienation.

However, virtually all condo boards can exert some measure of control over who becomes an owner in the building, through what is known as the board's "right of first refusal".  A right of first refusal basically means that the condominium association itself has the right to become the purchaser of the apartments being sold in the building.

Most condo governing documents give the board a right of first refusal when a condo unit is being sold and the ability to halt an impending sale by buying the apartment from its current owner.  The rationale for exercise of a right of first refusal by a condominium board of managers, as with a co-op board, is to secure a community of friendly, qualified and congenial condo owners while protecting the value of their apartments.  

The board must elect whether to exercise its right within a specified time period set forth in the bylaws (usually 30 days).  In the event the board fails to accept the offer within the designated time, in other words, decides not to block the sale, it will issue a waiver of its right of first refusal and the unit owner is free to consummate the sale.  

The board's right of first refusal usually does not apply to a conveyance by (a) a unit owner to adult family members, or a trust for their benefit, (b) the sponsor (with respect to unsold units), (c) the board or (d) parties in title as a result of a foreclosure.



Master Policy and Insuring Your Condo or Co-op

Posted on September 21, 2011 at 1:34 PM
The master policy provided by your condo/co-op board covers the common areas you share with others in your building such as the roof, basement, elevator, boiler and walkways for both liability and property damage.  If the roof of your condo gets damaged, for example, and water leaks into your unit, the master policy would cover the roof repair but not the individual repairs to your unit for damage to things like the ceiling, walls, carpets or furniture.  In addition to property damage, the master policy will have liability insurance for common spaces, such as lobbies, hallways and sidewalks. 

As the unit owner, however, you will need to purchase a personal home insurance policy (type HO-6).  The building's master policy does not protect your personal belongings or offer liability coverage for occurrences within your unit.  Your personal insurance policy will provide coverage for damages to your unit and your possessions, and additional coverage for living expenses if you are the victim of fire, theft or other disaster covered by your policy.  Your policy should also provide for liability coverage.  This way, you will have coverage for accidents that occur within your unit.  If someone falls and injures himself in your unit, your policy would provide the liability coverage, not the building's master policy.  

To adequately insure your unit, it is important to know which structural parts of your unit are covered by the master policy and which are not.  You can do this by reading your association's bylaws and/or proprietary lease.  If you have questions, talk to your condo association, management company, insurance broker or real estate attorney. 

Be aware of the deductible on your building's master policy.  If there is damage to the common spaces, every unit owner will be required to contribute money to reach the deductible.  If the policy actually covers some damages that are specific to your unit, you will have to reach that deductible yourself.  As a unit owner, you would want your personal policy to cover the difference between your individual policy deductible and the master policy's deductible, if you are required to use the building's insurance for something like a burst pipe.

Finally, make sure your policy has coverage for unit assessments.  Unit assessments are fees charged to unit owners to pay for repairs to common areas or property.  If your building is damaged by an insured disaster, and the cost of that damage is not fully covered by the master policy, this type of coverage would pay for your share of an assessment charged to all unit owners.


Certificate of Occupancy

Posted on September 19, 2011 at 12:52 AM
The purchase of a home is the biggest investment most people make in their lifetime.  To help ensure that you "get what you pay for," make sure that the home has a proper Certificate of Occupancy.

Unless the house was built prior to 1938, obtain a copy of the Certificate of Occupancy (CO), which describes the legal use and occupancy of a property.  To obtain a copy of a CO, visit the Department of Buildings in your borough or town.

Buildings constructed prior to 1938 are not required to have a CO.  If your house or property was constructed before 1938 and there has been no change in the use or additions to the property, or a change to the ingress or egress of the building, it may not have a CO.  If proof is required that no CO exists, the Department of Buildings will provide you with a letter confirming that a CO is not required for the building because it was built before 1938.  If you need proof of the legal use of a building that does not have a CO, you must obtain a "Letter of No Objection" from the Department of Buildings where the property is located.

If you are purchasing a property, especially new construction, check to see whether the CO is marked "Final" or "Temporary".  A Temporary Certificate of Occupancy (TCO) has an expiration date.  What this means is that although the house is safe for occupancy, this is a temporary approval that is subject to expiration.  If you purchase a home that has a TCO, you should consult an attorney and an architect or engineer to determine the requirements and costs for obtaining a final CO.

Your real estate attorney should obtain a written agreement and sufficient escrow from the seller/developer that will ensure that the seller/developer finishes any outstanding work and gets the permanent or final CO.

Take note of any construction that looks new or different from the rest of the house, such as an addition or deck.  Prior to closing, make sure that you get the proper CO from the seller for this work.  If you do not, as the new property owner, you will be responsible for legalizing any work that was previously done on the property without the proper permits or that was done in violation of the Building Code.  If you purchase a home with outstanding violations, you must correct the illegal conditions even if they were present when you purchased the property.  You will also be responsible for paying any outstanding fines or fees in connection with the violations. 



Your First Appointment With a Real Estate Attorney

Posted on September 18, 2011 at 11:14 PM
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