The holiday season is supposed to be a joyful time. Beginning at the start of November, as thoughts turn towards Thanksgiving turkey, cooler temperatures, family gatherings, Christmas, Chanukah, New Years and shopping, a certain contentment begins to settle in all around.  Or does it?

Certainly not in offices where real estate closings take place. Holiday season brings panic.  As year end approaches, the calendar is the enemy.  Everybody wants to close and everything is a rush.  A feeding frenzy has begun.

Why does this happen? I remember when I first began practicing, we always had to get 1 or 2 last big deals finished before the end of the year.  My senior partners always told me we had to do this for “tax reasons”.  The first couple of years, I assumed that this was because the client had tax planning reasons for closing by December 31.  I then came to realize that it was really for the firm’s cash flow needs that December 31 was critical.  Close the deals, collect large fees, partners get bonuses, don’t close, no fee, partners don’t get bonus.  Simple economics!

Later, when I started practicing on my own and money in the bank on 12/31 vs. 1/1 made no difference to me, we still had surges in November and December. But, if deals weren’t closed by the middle of December, many clients began to close up shop for the holidays, deciding to carry over the gain or loss until the next tax year.  Thus, 12/31 became an artificial deadline.  Sometime before 12/20 was the new deadline only for my own peace of mind.

Today, the feeding frenzy is as real as ever. It is true for residential and commercial closings.  Some of it might have to do with Trump tax reform.  But there are other factors.  First, we continue to ride a long, strong economy.  The real estate market remains strong and interest rates remain low.  With so many deals out there, clients want to close quickly to take advantage of the economic climate and interest rates before this changes.

Second, contracts signed early in the year, after everything closed at year end, run their course and have year end closing dates. There are 2 factors driving this.   Commercial deals are longer term.  Once the due diligence period has run its course and approval and other contingencies have been satisfied, closing must occur.  In a typical commercial contract, this can take 6-12 months, sometimes longer.  But when the date comes up, there is a rush to close.  Though you can’t predict when a contract will be signed, it does seem that many projects start at the beginning of the year which often times out the closing date for the end of the year.  As to residential contracts, many people put their homes up for sale in the summer, after the school year.  Consequently, contracts are often signed at the end of summer and early fall.  Closings usually take 60-90 days, which puts the closing right in the middle of the holiday period.

Third, cash deals are very common in both residential and small commercial contracts. Take a lender out of the picture and the process to close gets shorter.  Sellers like to accept cash contracts as it takes a major contingency out of the picture, further shortening the closing.  Sellers will accept lower purchase prices to get to closing faster.  If the expectation is a faster closing, a closing scheduled for the holiday time period will not likely carry over to the new year.

How do we cope with the frenzy and avoid becoming shark chum? Clients, brokers and other attorneys can sense stress immediately and when they do, they do what they can to add to it.  It is important to remain organized and up to date on every transaction, no matter the size, so that you never let the sharks smell the blood in the water.  If we do this, we will make it from Thanksgiving to New Years in one piece.

Close-up of silver pen on contract. Selective focus on top of pen.

        I was recently browsing through an in-box full of blogs and articles and came across a great article on Inman.com by Cara Ameer, a Coldwell broker-associate in Ponte Vedra Beach, Florida, 10 Reasons You Never Buy or Sell Without an Agent. Cara is right; you should absolutely use an agent when buying or selling a home. Her 10 reasons just scratch the surface. But considering that I just posted Is Your Real Estate Agent On Your Side? last week, I had to respond to Cara. Many agents, at least here in South Florida, encourage or “suggest” to their clients that there is no need to get an attorney involved in a house closing. Attorneys just muck things up. These agents say that the title company can handle every thing.

             Before I give you my 5 reasons, let me tell you a story about a client, a husband and wife, I am currently helping, whose agent told them exactly that. They were purchasing a home in Coral Springs about a year ago. The inspection revealed that the roof, over 20-years old, needed to be replaced. It could not be repaired. The roof was a shingle roof. This is unusual these days as most South Florida roofs are tile. The cost of a new shingle roof would be about $7,500 and the client asked their agent and the seller’s agent if they could still put up a new shingle roof. Without hesitation, both agents assured the client that shingle was permitted and the client’s agent skillfully negotiated a $7,500 credit from the seller for a new roof.

             In addition, the title company, recommended by client’s agent, did a lien and open permit search on the property. The search disclosed that when the roof was put on the house over 20-years ago, the permit was never closed. Both the client and the agent directed the title company to take the necessary steps with the seller to have the permit closed prior to closing.

             Sometime after closing, the client engaged a contractor to install a new shingle roof. The contractor went to pull a permit for the new roof and was denied because 1) there was an open roof permit on the house and 2) shingle roofs are not permitted in this neighborhood in Coral Springs. Only tile roofs are allowed. The agents and the title company clearly dropped the ball. An attorney would not have. A tile roof will cost almost $30,000. Client would not have closed had they known the cost would be so high and had Seller not agreed to pay it. In this case, while agent did a fine job negotiating a roof credit, he did no due diligence to determine what was allowed in the neighborhood. Consequently, the credit was insufficient and his client, my new client, would not have purchased the house. He exasperated the problem by not assuring that the open roof permit was closed prior to closing.

             My top 5 reasons to use an attorney in closings:

 

  1. An attorney always represents you first and foremost. An agent is likely a transaction broker and owes you no fiduciary obligation.

 

  1. An attorney can and will solve problems that arise during the closing process. My case above is an example. Other examples include title issues or issues with the lender. Brokers can’t deal with these issues and title companies are simply closers. They only follow instructions and won’t point out title exceptions that could be harmful to the buyer or might not be relevant and, I illustrated above, won’t always follow up. In Florida, many attorneys act as agents for title companies. But as your legal representative, attorneys actually read the documents and understand the meaning. Attorneys will work to remove exceptions that don’t apply and will work with underwriters on complicated issues.

 

  1. Where negotiations get heated, an attorney has skills to resolve problems. Agents do as well, but an attorney understands and addresses legal implications and can protect your interests. An agent can’t go this far.

 

  1. Attorneys understand and are up to date on TRID, the “Know Before you Owe” Rule. They can help you navigate loan complexities.

 

  1. Attorneys read and understand the fine print. I have to say here that I am often presented with contracts from agents that are on outdated forms. Current forms address current rules, laws and regulations such as TRID. Agents should be aware of this, but some aren’t.

 

            These are just my top 5 reasons to use an attorney; there are many more. Don’t exclude an agent. But a good agent working with a good attorney make a great team for anyone buying or selling a house.

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        Title Insurance is an important part of every real estate transaction. The insuring of title to real property consists of two distinct steps:  1) the issuance of a preliminary report that describes title conditions, which will serve to limit the title insurance if issued (the “Commitment”); and 2) the final title insurance policy that may have all or some of the limitations to coverage spelled out in the preliminary title report.  The Commitment is really a contract to issue title insurance at a future date when the terms of the Commitment are complied with.

        The Commitment is an essential document in a real estate transaction.  Therefore, mastering the Commitment is an essential part of a successful real estate transaction.  Most real estate contracts specifically require one party to pay for and obtain a Commitment and an owner’s policy.  In the alternative, the real estate contract may call for the seller to provide the buyer either:  (1) evidence that the seller is the titleholder of record; or (2) evidence of the condition of title, along with a specific number of days for the seller to perfect title to the property.  The title evidence that is usually requested to meet this requirement in such a real estate contract is a Commitment.  In either case, failure to provide a Commitment could result in a default under the terms of the real estate contract.

        Schedule B-1 of the Commitment should be your checklist for closing. This Section lists all the requirements that must be satisfied before the policy will be issued.  The purpose of the requirements is to assure that title will properly vest, without exception, other than as set forth on Schedule B-2, in the proposed insured.  Everything is spelled out clearly in Schedule B-1.  All of the documents that you will need and the steps that you have to take to assure clear title are there for you in black in white.  You can simply make a copy of B-1 or add it to your over all checklist.  But until you have all of the items on B-1, you can’t close.

          Schedule B-2 contains the items that will not be covered by the final title policy to be issued.  It contains both the standard exceptions and the specific exceptions to title.  The specific exceptions are the matters that have been found after examination to affect the property and will not be covered when the policy is finally issued.  It is important to always carefully review the commitment and all of the exceptions.  Just because the commitment contains a list of exceptions does not mean that they all apply or are actually exceptions.  If you are representing a buyer or a lender, it is your job to make sure that title is accurate and beneficial to your client and that none of the proposed exceptions will interfere with your client’s proposed use of the property.  If any exception does not actually affect the property, request that the seller and underwriter delete it.  If the exception adversely affects the proposed use of the property, you need to figure out how to delete or revise the exception.  The art of title is negotiation.

         My favorite part of a real estate transaction is negotiating the title commitment. There are at least three people to negotiate a commitment with: the agent, the examiner and the underwriter. If you are the agent, obviously, you aren’t going to negotiate with yourself.  Your interest in negotiating the commitment is going to differ depending whether you represent the borrower or the lender.  But the seller, who has no insurable interest, often gets involved in negotiating commitments because when the title objection letter comes from the buyer, sometimes the best way for the seller to address an objection is to negotiate with the underwriter to change a requirement or delete an improper exception.

        When I receive a new commitment, I review the requirements and exceptions carefully. I review the underlying documents to understand why the examiner included them on the commitment.  I analyze what is going to need to be done to satisfy each of the requirements and make sure that the properties and people and entities set forth in the requirements are the same as those involved in my transaction or are properly related to my transaction.  If the connection is not obvious, I flag the requirement.  As to the exceptions, I read each one and make sure that none would adversely affect the property or the buyer’s intended use, or, if I represent the lender, would violate any term of the loan documents.  And, I make sure that the exceptions actually apply to the property and haven’t otherwise expired.

        After this review, I often have 2 lists, one is a list which I put in a title objection letter to the seller. But the other is a list which I discuss with my examiner, if I am the agent, or with the agent, if I am not.  This list will consist of issues that should be resolved by the title company as opposed to the seller, including satisfaction or deletion of inappropriate requirements and deletion of misplaced exceptions.  The caveat here is that the examiner is just a scrivener.  So if the issue is one where you can show that a document like a partial release was missed in examination, or a mis-spelled name appears, the issues can be quickly resolved.  But anything more complicated requires an underwriter’s attention.  As issues are resolved, Schedules B-1 and B-2 are revised and the Commitment updated.  And finally, at closing, documents are presented, executed, recorded, and the remaining requirements satisfied so that the final policies may be issued.

        The work that goes into insuring title to property prior to closing can be the easiest part of a closing or the most difficult part of a closing. Sometimes one issue can delay a closing for a many weeks.  It is important to take these issues seriously and to work with your attorney and underwriter to resolve all issues.

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There are many costs to be paid at a real estate closing. I am often asked, “what is the “custom” as to payment of closing costs in Florida?” Frankly, this is a loaded question. There is not a single answer. In commercial transactions, everything is negotiable and who pays each individual closing cost is often negotiated. When it comes down to it, there are generally only 2 things that anyone cares about anyway: documentary stamps on the deed and title insurance premium. Title insurance premiums are promulgated in Florida, so there is no shopping for a deal. However, since title insurance benefits the Buyer, the Buyer usually wants to select the agent (usually Buyer’s attorney, if licensed in Florida). Therefore, Buyer concedes and pays the title premium. However, sometimes search costs are passed back to the Seller.

Doc Stamps (and in Miami-Dade County, Surtax) remain an issue. Most attorneys start with the position that the “custom” is that Sellers pay. This is so only because that is the custom in residential transactions (see below). However, Sellers and their attorneys will always attempt to shift this cost and as many other nominal charges to the Buyer. Deal economics and other factors setting negotiating strength will determine the outcome.

Florida residential transactions are more set. It is customary for the Buyer to pay for survey, title premium and recording costs. The Seller, on the other hand, pays for the title commitment or other search costs and doc stamps. However, in Palm Beach County, Seller is responsible for the title premium (rather than Buyer) and selects the title/closing agent.

Of course, in both residential and commercial transaction, the Buyer is responsible for all financing costs, including additional title premium, doc stamps and intangible tax on the note and mortgage, bank fees and recording costs on the mortgage and loan documents.

The bottom line is that the custom of payment of closing costs depends on the type of transaction and the location of the transaction. If it is a commercial transaction – it is no holds barred. Negotiate!

 

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