Thursday, October 2, 2008
Who are the key advisors in buying a Manhattan home?
This week real estate Attorney Keith Schuman talks about the core team that you'll need to accomplish your purchase of a Manhattan condo, co-op or townhouse. He lists them in pretty much the order in which they will be involved in the process. My customers often ask me for referrals to mortgage and legal professionals, and I usually provide two or three candidates for them to interview (Keith is often on the list). Asking friends and family is a good way to go too. With respect to legal counsel, make sure that real estate in New York City specifically, is the main focus of their practice, not an occasional sideline. The transactions are extremely complex and different than those in New Jersey or even just north of Manhattan, especially when a cooperative unit is involved. A missing piece of paperwork could cause a closing to be adjourned, creating ripples of problems that would be best avoided. I might add that you will likely rely on the advice of your accountant and other financial professionals, as you evaluate the tax benefits of your purchase of a home.
Getting started key personnelTo begin, you should assemble a team of real estate professionals that includes a real estate broker, a mortgage broker, and a real estate attorney. As with most teams, the stronger the individual players, the more successful you will be in achieving your goal. So choose the individuals who will make up your winning team carefully and thoughtfully.
Real Estate BrokerTo find an effective real estate broker who can steer you through the complex maze of home buying, get referrals from neighbors, friends, and colleagues (including your lawyer or financial advisor). You should look for someone with whom you feel comfortable, not anxious and pressured. The broker should specialize in neighborhoods where you want to live, return calls promptly, answer questions readily, and inform you about new listings. Not only will your real estate broker be your conduit to available properties and your aide in negotiation, he or she also will coordinate the activities of the other team members, such as the home inspector and the real estate attorney. By doing your homework to find an experienced broker, you will have someone in your corner that can assist you at almost every step of the transaction particularly with the selection and comparison of properties and the negotiation of the purchase price or with the preparation of your board package when purchasing a coop or condo apartment. Best of all, there is no cost to you since the brokerage commission is paid by the seller.
Mortgage BrokerTo obtain a home loan, most purchasers enlist the help of a mortgage broker rather than going to a bank. There are many advantages to using a mortgage broker rather than applying directly to a bank for a loan. In addition to processing your loan application, the mortgage broker will evaluate your financial situation, pre-qualify you for the loan amount that you can afford, and calculate your monthly loan payments. Mortgage brokers are not lenders (although in some instances, they can act as the lender), rather they arrange and negotiate the conditions and terms of loans from lenders on your behalf. Your satisfaction in the process of buying a home may greatly depend on your relationship with, and the competency of your mortgage broker. If the application, processing and underwriting go smoothly, it can be a simple process. If you encounter problems with your loan, it can turn into a stressful nightmare. A mortgage broker will provide you with a choice of loan programs offered by different banks on a competitive basis. In fact, a mortgage broker can simultaneously submit a loan application to several lenders with only one application fee. This greatly improves the likelihood that you will find the best rate and terms available in the marketplace. Many purchasers have found that going directly to their bank, even if they have a long-standing banking relationship, affords them no better terms and conditions than those offered by a mortgage broker. In addition, a mortgage broker will assist you in preparing and submitting a loan application to a lender (generally more quickly than if you were to apply directly to a bank) and will explain all aspects of the loan process. The mortgage broker’s service is free to the purchaser since the mortgage broker’s fee is paid by the bank lending the funds.
Real Estate AttorneyYou should always retain the services of a real estate attorney who is licensed to practice in the State of New York and is experienced in representing home buyers. You need a lawyer because there are inherent conflicts of interest between purchasers and sellers. Once a contract is signed, the rights and obligations of the parties are fixed. The time to consult with an attorney is before you sign any papers.
Prior to signing a contract to purchase a home, your lawyer will perform a due diligence review of the underlying documents relating to the home. For a house purchase, your lawyer will examine the deed, the seller’s title insurance policy and survey (if available), the certificate of occupancy, and any documents that may be recorded against the property, such as easements and restrictive covenants. For a condo purchase, your lawyer will examine the offering plan and amendments, the bylaws, the rules and regulations of the building (sometimes called the house rules) regarding pets, guests, alterations, repairs, noise, nuisance, sublet policies and home occupations, the board’s meeting minutes, and the financial statements of the condominium for at least the last two years. For coops, your lawyer will review the proprietary lease as well as the same documents previously mentioned. Only a thorough investigation and analysis of a house’s underlying documents or a coop’s or condominium’s physical and financial status and history (e.g., number of owner-residents, number of investment apartments, assessments history, construction and repair and major capital improvements, underlying mortgage, lawsuits) will identify any serious problems with the building.
The real estate sales process
Once a seller has accepted your offer to purchase, the seller’s attorney will prepare a contract and send it to your attorney. Your attorney will review the contract with you, explain the conditions and terms contained in the agreement, and give you an estimate of the closing costs. Most attorneys will negotiate with the seller’s attorney to include an additional rider to the contract containing terms that further protect your interests in connection with the purchase. Once all of the terms of the contract are agreed to, you and the seller will sign the contract. Your attorney should send a copy of the signed contract to your mortgage broker who needs the document to process your loan application. After you receive a commitment from a lender to make a loan to you (the loan commitment letter), your attorney will review its terms and will explain any conditions contained in the commitment letter. Your attorney also will order a title report (for a condo or house purchase) or a lien search (for a coop purchase) after the contract is signed in order to examine the title to the property and to ensure that any liens or encumbrances against the property are removed at, or prior to, closing. If you are purchasing a house, your attorney will schedule the closing as soon as all title conditions have been cleared and you have obtained clearance from your lender to close the loan. If you are purchasing a coop or a condo unit, you also will have to wait until you have obtained approval of your purchase application from the coop corporation or condominium board. As soon as all the necessary approvals have been obtained, your attorney can schedule the closing with the seller’s attorney, the lender’s attorney, and the building’s managing agent. Your attorney will prepare a preliminary closing statement containing a breakdown of checks required for the closing and will attend the closing with you to explain all loan and closing documents that you will be required to sign. After the closing, your attorney will provide you with a final closing statement and copies of all documents that you signed at the closing.
About the author: Keith A. Schuman, Esq. is the founder of Schuman & Associates, LLC, a full service real estate firm that provides legal services to its clients, through all aspects of their transactions. Keith is a frequent contributor to comitini.com. Contact him at email@example.com or phone 212.490.0100.