Closing Chicago Real Estate

I’m amazed at how frequently real estate attorneys horribly and wrongly estimate either a client’s bottom-line amount owed by a buyer (how much $$$ to bring to closing) or the Seller’s expected proceeds. Mainly because at a practical level a buyer without enough money is NOT a buyer, but (more important to your law practice) because if I was a client who thought I’d owe $1,500 at closing and end up owing $9,000 I wouldn’t be overflowing with confidence or raving reviews of my real estate lawyer.

Just last week I worked with some Sellers and there was a $12,000 Buyer’s closing credit in the deal. However, since Buyer’s were using an FHA loan they had to put at least 3.5% of the purchase price into the deal. So, Buyer’s couldn’t get full credit for the $12k at closing and more importantly their bottom-line thus needed to be about $9,000 cash to close versus $1,500 cash to close. Needless to say, Buyer’s attorney hadn’t prepared them for this eventuality. Miraculously this deal closed because the Buyer’s could bring in extra dollars.

But, if I’m those Buyers my summary recollection for my first home purchase is, “remember that sloppy attorney who was $8,000 off in his estimate of funds to bring to closing.” Nope, I’m not recommending him to anyone else.

In conclusion this is a thoroughness issue. The day before the closing you’ve got to review the file…contract, attorney review letters, title charges…simply know the numbers and advise your client accordingly.

YOU WANT YOUR CLIENTS TO REMEMBER YOU…BUT FOR THE RIGHT REASONS!

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Comments (0) Jan 26 2010

Here’s what I’ve been reading in real estate around the Web…

Home Buyer (11/6/09 version) Tax Credit:  10 Things to Know. I sometimes call myself a real estate lawyer but have been admittedly slow in getting up to speed on the revised tax credit…I do get to celebrate a few holidays, no? For my money the big change is the $6,500 credit to home buyers who have previously used the same home as principal residence for at least 5 of the last 8 years. Also note that military members on extended duty outside the U.S. have until 4/30/11 (a year beyond the rest of us) to take advantage of the credit. For the most part, the “first time” homebuyer part of the credit remains the same expiring 4/30/10 (or 6/30/10 for properties under contract by 4/30/10).

Here and Here are 2 somewhat complimentary stories on the success/not of the Making Home Affordable program…one a more national and the other more Illinois focused. On the upside, mortgage loans ARE now being modified (the lack of modification efforts used to be a favorite rant of mine). But, at least in Illinois only 7% of the modifications are permanent. So, does the program simply serve to lengthen the housing crisis by giving false hope to homeowners who in the end won’t be able to afford their homes in the end regardless??

Don’t Buy a House–Yet. I think the op-ed makes a compelling argument…namely, real estate prices likely haven’t hit bottom and the market’s recovery will be agonizingly slow so what’s the rush? Foreclosure rates remain near their high and banks haven’t even fully released all of their inventory onto the market and the unemployment rate is going to remain around 10% through the end of this year…those are facts.

Town house or condo. The difference isn’t always so obvious. Usually the townhomes are multi-story with the small front/backyard that you actually own whereas a condo is a self-contained unit on a single floor and the rest of the building is commonly owned. But it’s not always so stark…legally look at the declaration, a condo must use “condominium” is the legal title of the association and of course the Illinois Condominium Property Act governs condos but only section 18.5 governs town homes.

And lastly…

Debtor’s Dilemma:  Pay the Mortgage or Walk Away. A fairly lengthy piece from the Journal focusing on people who CAN afford to pay their mortgage loans but are choosing not to based on the property’s plummeting value. Hard for me to empathize too much with these people…I think this debate is centered in futile, American vanity. Namely the focus on your home’s value…if you’re like what 75% of people who aren’t planning on relocating, you needn’t/shouldn’t care if your home value has dropped. Banks aren’t offering lines-of-credit anymore anyways. Sit back, take that mortgage interest deduction, and enjoy the view.

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Comments (1) Jan 16 2010

Ok, first the rant and then some instruction…

I’m bothered a tad when someone asks me to represent them at their real estate closing but particularly when I hear attorney colleagues use that as an expression of residential real estate representation. It diminishes the practice and if that’s all you are doing then you’re not representing your clients very well. I view my representation of people buying and selling residential real estate as a 4-part process:

1.  Initial contract review, attorney modification and inspection negotiation.
2.  Mortgage/title clearance monitoring.
3.  Closing.
4.  Deed recording & title insurance follow-up, post-closing escrow releases, and final client correspondence.

And I think I’m particularly annoyed by the expression because it de-emphasizes the importance of what an attorney is doing pre-closing and to ASSUME that a contract will close and everyone will live happily ever after is stupid! Here’s the recent war story, short and sweet…

A long-term client recently asked me to look at her son’s file regarding a problem getting his earnest money back after a failed real estate deal (he was the prospective buyer). And the lawyer he used seemed to have been writing the proper letters and the client appeared to not be at fault. He wanted to get out of the contract based on various legitimate inspection and mortgage contingency reasons.

Yet I saw 2 BIG things I didn’t like:

1.  Buyer’s attorney letters are never “accepted” by Seller’s attorney. Have an assistant follow-up on these after a day or two if you’re asking for a mortgage contingency extension or whatever. This file I was reviewing contained at least 5 extension requests but none are accepted by the Sellers attorney…that’s at a minimum a serious communication problem.

2.  You must keep proof of service/notice of your letters. This was the true shocker when reviewing this file. This law firm only kept its fax confirmation pages for two months. So now this client is considering options to get his earnest money back, including litigation, and yet he’s going to have a serious problem proving proof of proper notice. Send your letter, printout and staple your fax confirmation page to the letter, and file. Simple.

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Comments (0) Dec 24 2009

Communication likely is job one for the different players in any real estate transation from lender to lawyer to agent. But it’s particularly important with short sales as they drag on and on and on and on…

Case-in-point, we’ve been working with some buyers over the last several months who had entered into a contract regarding a transaction that they knew up front was a short sale and I surely counseled them up front that this deal may take several months to close or it may not close. Fast forward 2-3 months and clients are getting a bit nervous that the deal may not close prior to Uncle Sam’s November 30, 2009 bewitching hour and they start considering other properties.

Well, Buyer’s find another property, want to kill the ’short sale’ deal, and put in an offer on the “new” property. We send letter over to Seller’s lawyer on the short sale to null/void the contract and suddenly are told that first mortgage has approved the short sale and are given written proof of said approval and they’re just waiting for approval by the second mortgage-holder (what was worse was that my office had followed-up within the last couple weeks and we were told specifically Seller was still negotiating). So we may have just been getting the run around.

But the moral of the story is that particularly on the Seller’s side, you need to communicate the status of the lender negotiations to the Buyer or the Buyer’s eyes may start to wander. A quick e-mail or fax every 3ish weeks doesn’t take too much time. And it might keep that Buyer interested and save a Seller the ramifications of foreclosure.

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Comments (1) Sep 24 2009

I was recently part of an interesting negotiation during the attorney review period of a residential real estate contract regarding a buyer’s potential repairs that came up on an inspection report and other possible buyer credits. As the attorney for the buyer primarily it was eye-opening that the Seller is this particular transaction was taking such a hardline amidst the worst real estate market in recent memory. The Seller was adament about the fact that the Buyer’s prorated real estate tax credit should be 100% of the previous year’s tax bill and Seller would do no repairs nor provide any credit despite probably $2,000-$3,000 of substantial repairs that were raised in the inspection report.

What’s the sweet spot in terms of $$ when negotiating fairly straight forward deals like the above?

Generally I think Seller should be willing to compromise up to the amount of his total monthly expenses that she pays each month for the property that she’s selling. In other words, add up mortgage liability, condo assessment, property taxes, utilities, insurance, ect. Say that total is $2,000. I’d suggest that Seller should be willing to deal up to that amount in order to get a deal closed with the current buyer. Probably even more in a soft market, but I think that’s a good, easy guide for finding the “sweet spot” needed to get a deal closed.

My reasoning is that even if there is a backup buyer ready to step in, by the time you play with the first buyer’s attorney review period for 10-14 days, kill the deal, then second buyer has 10-14 days in attorney review…a month is eaten up and closing is delayed approximately a month. Thus the one month’s expenses as a simple barometer. And this likely even leans optimistic for Seller.

Are you really ever certain that there’s another offer out there?

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Comments (1) Sep 23 2009

Well if nothing else this blog has now existed over the life of three versions of the Multi-Board Residential Real Estate Contract. Here’s my analysis of version 4.0. I attended a CBA seminar in May where version 5.0 was discussed but hadn’t seen it used in the real world until the last month or so. Here’s a copy of the v. 5.0 along with a couple comparisons done by the Illinois Real Estate Lawyer’s Association here and here. Here’s a sample copy of v. 4.0 (notice the big red letters).

Honestly, very minimal substantive changes save one.  Some changes in 5.0 to be aware of:

9. Attorney Review. 5.0 includes a new paragraph where a party to the contract can propose “suggested changes” to the deal which are different than “modifications” which would constitute a counter-offer. If the “suggested changes” are not agreed upon the underlying contract remains in effect. At the moment I can’t see myself making any use of these “suggested changes.” If I’m suggesting a contract modification it’s because there’s something important at stake, if there’s nothing at stake I’m not proposing any changes (modification or suggested changes).

10. Professional Inspections. 5.0 softens the “automatic kill” provisions contained in 4.0. Now you “may” kill a deal if there’s no agreement regarding inspection issues within 10 days whereas 4.0 declared deal “null and void” if no agreement within 10 days.

11. Mortgage Contingency. 5.0 includes a blank to add a loan amount in the % of purchase price whereas 4.0 had a blank to list an actual dollar value. The reality was that real estate agents were nearly always putting in a % regardless of what the contract form directed.

21. Seller’s Representations. 5.0 expands this listing to include a list of 9 Seller representations AND it state’s specifically that these representations “shall survive the closing.” This could have impact if you get a Seller who lied in the contract. Under 4.0 this sort of thing may have “merged” into the deed (i.e. not survived the closing).

27. Notice. The language regarding e-mail notice is modified to provide for opting out of receiving e-mail notice. Of course 5.0 also says flat-out that if party of party’s attorney provides their e-mail then he can get notice via e-mail unless he opts out. Likely a non-issue…as convenient as e-mail is I don’t know of many attorney’s who use it for formal notice matters under contracts.

Take a look at some of the IRELA breakdowns I reference above if you want to see a comparison of EVERY change. My list was just what I thought were the semi-significant changes. Quite honestly the changes are non-substantial enough that one might question if the new version was necessary or surely the timing of the redo.

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Comments (0) Sep 01 2009

Well, I”m no trial lawyer but in Illinois state courts the answer is two-fold:  a) when you have a cause of action where such right existed at the time of common law (thanks to our old British colonial past); b) if the legislature creates a new cause of action and specifically sets forth the right to a jury trial. Of course there really are virtually zero civil jury trials these days anyways, right? Or you have cases like below where there was NOT a legal right to a jury trial but the trial judge gave them one anyways.

Here’s the case, Anderson v. Klasek, No. 5-07-0390…sort of your typical suit brought under the Residential Real Property Disclosure Act, et al, where home buyer sues seller and listing agent. The plaintiff/buyers brought separate counts under the Residential Real Property Disclosure Act, the Real Estate License Act, and the Consumer Fraud Act.

Since all of these Acts are not based on the common law and a jury right is not set forth within them, there’s no right to a jury trial said 5th District Appellate court. So, Plaintiff gets a second chance…read the case, I don’t like his chances anyways.

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Comments (1) Aug 21 2009

Here are 5 steps I’m taking with every single real estate contract that comes into our Firm…

1. Initial contract and inspection review. I view this stage in my representation of people buying property as the most important stage in the process both legally and as a business/marketing matter. Because this is first impression time, when that contract comes in from that real estate agent referral source, that’s a potential new client sitting in your inbox. And, in my expereince many clients think that you’re just sort of “there for the closing.” I think the way to handle a new contract is to contact your potential new client within a day or so of getting that contract and ask if she’s having a home inspection done and assuming she is (assuming this is a purchase), set a time a day or two after the inspection is done to review both the contract and the inspection fully with the new client. Then REALLY review the contract and to a lesser extent the inspection report (I rely a bit more on the inspector and client regarding inspection issues). That 10-11 page contract that some real estate hurridly filled-out sitting in her car IS THE TRANSACTION…so it better be right, it better be consistent with the terms your clients are expecting or changed to meet your clients expectations if there are errors. Some low hanging fruit to always remember:  make sure the personal property provisions are handled properly (the check marks are correct), pull the property’s tax bill to be sure any tax credits are adequate, get some $$ from that inspection report, and talk through closing logistics and convenience matters. Get a client’s lender contact and talk loosely about loan terms and the mortgage contingency. I like to get a copy of the Good Faith Estimate provided to borrowers by lenders.

2.  Attorney Review and Inspection letters. This flows right from #1. If you’re thorough in reviewing the contract and inspection report you’re almost always going to find an error and want to verify something that’s confusing or often actually make substantive modification and/or repair requests. If you find yourself saying too many times to a new real estate client, “the contract looks fine” you might want to ask yourself if you’re providing the best and most thorough representation that you can.

3.  1-10 days prior to closing counseling…be fastidious and manage client emotions. Once #1 & #2 above have been handled there’s a lull in the action as the buyer’s lender somewhat dictates the speed at which the transaction proceeds. Check-in with a lender every 3-5 days as you get near a closing and make clear to your client that lender delays always happen and to expect them and not to get too worked up if your closing is delayed a few days. Once a buyer’s lender gives the ‘clear to close’ schedule a closing that’s convenient for your client, remind her what she must bring to the closing, and remind her to do a property walk-thru a day or so prior to closing. 12-24 hours pre-closing give your client a bottomline $$ figure (official funds please) to bring to closing so she’s not rushing around the morning of closing.

4.  The closing. The key here is managing client expectations because the closing is pretty simple and the culmination of earlier good work on the lawyer front. I know that, but surely the client will remember the dreaded 8 hour closing. Client must know that closings are filled with “fluff” delays that aren’t a big deal if you’re prepared for them, but they can be devastating if client thinks she’s moving in in 2 hours and she’s paying for all her life’s belongings to sit on a moving truck. As for legal work, be sure the HUD matches what was agreed to in the contract, the deed’s legal description matches the title commitment, and put on a happy face and bring some small talk to the table.

5.  Post-closing counseling. Frankly, this is a great marketing opportunity because “the stress of the process” is over for your clients and they’re likely happy homeowners now. And you need to provide them with both the title insurance policy and a recorded copy of their deed anyways. We include a letter touching on things like property tax exemptions, tax matters related to the transaction, title insurance, and suggest that client open a HELOC if possible. But we also use this as that last marketing shot too…putting everything in a personalized folder, including a few give-away things with our information attached, and explainging the full scope of our Firm’s practice.

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Comments (4) Aug 07 2009

They aren’t secrets actually but it sure seems like it sometimes when a transaction drags on several hours or days. I actually had a fun and fast transaction that closed last week and it doesn’t happen by chance. Some keys to make your closings fun & fast:

Plan & Discuss Closing Scheduling Up Front. If I’m Buyer’s attorney this is discussed with my client right up front as part of my initial contract review. There’s typically an estimated closing date in the contract and we discuss if that’s okay or an alternative and also what’s convenient in terms of a title company closing location. Once you’ve done this, communicate with the Seller’s attorney immediately about a convenient closing time and location with Seller/attorney. So an expecation has been set right up front.

Present a title commitment to Buyer’s attorney and Buyer’s lender about 14 days pre-closing. My rule on this is not too early but also not too late…if necessary err on the side of being early. I say not too early because you don’t want to waste time ordering/preparing/reviewing a title commitment if the deal feels shaky. Assuming you have 30-45 days in the transaction, get 10-15 days in, make sure the deal feels solid and then get your title commitment ready. In my experience these days there’s only 2-3 days between placing a title order and getting a title commitment back from your title company.

Seller’s attorney MUST get figures in early & accurately.  You must get these in the business day prior to the closing. And accurately…scour the Contract and any agreed upon modifications so you properly include every credit, commission, attorney’s fees, others items being paid at closing (survey, association fees), ect. Changes to the HUD-1 Settlement Statement are a major cause of unnecessary delays.

Buyer’s lender MUST get figures in early & accurately. You don’t have a lot of control here as either attorney but you can barrage them with phone calls I guess.

Seller’s attorney must provide all necessary documents and the documents must be accurate. Seems like this is implicit as the Seller’s attorney but I’ve surely had closing’s where the documents were all wrong or a document was forgotten (the certificate of insurance for a condominium association is a popular culprit). My worst experience in this area was a new construction property where the Seller’s attorney didn’t appear at the closing AND his documents were all wrong…great lawyering buddy!

Buyer’s attorney must know the documents that are important (and not) and control her client(s) during signing. Right? The HUD-1 and all its figures, the Note, Mortgage and the Seller’s documents are critical…most of the rest are just repeating the same information 5 different ways. I think I used to waste a lot of time going through every document in detail as a younger attorney. Though, once in a while you’ll have a festidious client who demands discussion of each and every page, so you just gotta do it.

Lender’s should stay by the phone until a deal’s closed. Kinda obvious, no? Yet it’s amazing how often there are delays because a closer can’t get the lender’s closer on the phone.  My fun and fast closing last week took about 45 minutes but it could have been 30 if the lender’s closer had been easier to track down.

Real estate closings are all about planning starting from the day a contract is signed. And slow closings aren’t the norm…a slow closing need not be the norm, nope, it just means somebody screwed up.

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Comments (0) Jul 08 2009

Some positive news from the IL Association of Realtors figures regarding May home sales released yesterday and here’s the story from the Tribune. Pretty consistent with what I’m feeling down at the micro-level. Sale prices up some 4% from April and the total number of homes sold up in the high teens from April, BUT, way down year-over-year.

I’m seeing a lot of buying activity out there and sales, if seller is pricing property appropriately rather than at 2007 values. The first 6 months of ‘09 we probably had 400% more residential transactions close in our firm compared to the last 6 months of ‘08 and I’d expect a similar increase over the second 6 months of ‘09.

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Comments (0) Jun 24 2009