Marc Jacob

In a number of older contracts for home purchases we have seen, the Buyers’ obligation to close was conditioned upon their ability to get a loan. In the contract forms most commonly seen today, however, Buyers only have a certain number of days to secure financing (get a loan), after which they are obligated to close, even if the lender does not finance the purchase.

As you can imagine, this puts Buyers in a very difficult position. On one hand, Buyers may get something from their lender called an “Approval” or “Commitment.” That document, however, is not a firm commitment from their lender, and will likely be subject to a number of conditions that need to be satisfied prior to the lender funding the deal. In most cases, it is unlikely that Buyers will be able to satisfy all these conditions prior to the loan contingency deadline. For more information on the loan contingency deadline, read this previous post.

Obviously most Buyers do not have the ability to purchase a home without the help of a loan.

Here are a few of the possible outcomes Buyers could face if their lender does not ultimately provide financing:

• The Sellers could grant the Buyers additional time to secure financing.

• The Sellers could agree to finance all or part of the loan, if that would satisfy the institutional lender. (See this post for more information on Seller-Take Back Financing.)

• The Sellers could hold Buyers in breach and sue for damages.

• The Sellers could attempt to force the Buyer to purchase the home. Although we have seen Sellers and their legal counsel threaten this, most of the contract forms we see do not give them this right. Even if the contract contains such terms, we do not know if these terms would be enforceable in a Missouri court. (For more information, read this previous post on Seller’s remedies.)

• The Sellers could agree to keep the Buyers earnest money and let them out of the contract. In the event there is not much earnest money, the Sellers may require the Buyers to pay an additional amount.

If you have questions about your loan, or the loan contingency deadline in your contract, please contact us at 314.862.2237 or at mjacob@marcjacobesq.com

After the Buyers sign a contract to purchase a home, they will generally have a certain number of days for “due diligence.” This is the Buyers opportunity to determine if there are any problems with the home, title, etc. that would lead them to terminate the contract. (If done properly, Buyers will generally not lose their earnest money.)

The first type of inspection Buyers typically obtain is a Private Home Inspection. A Private Home Inspector looks through the entire home to find major and minor issues that the Buyers may want addressed prior to closing. For more information on how to find a Private Home Inspector, read this post.

Beyond the Private Home Inspection though, there are a number of other inspections that Buyers may want to consider and that may be suggested depending upon the situation. Among them are:

• Termite/wood-boring insect inspection;
• Radon inspection;
• Lead-based paint inspection;
• Roofing inspection;
• Plumbing inspection;
• Structural engineer inspection;
• Electrical inspection;
• Pool inspection;
• Chimney inspection;
• Back flow/ground sprinkler inspection/certification;
• Gas inspection;
• Other inspections may be available depending upon the location and specific need.

Some lenders may require a termite inspection. In Missouri, it is also common to get a radon inspection, especially if Buyers have young children, due to the sometimes high levels of radon located here.

Beyond these additional inspections, most of our clients wait until after they get their private inspection report back before determining what additional inspections are needed. That is why we advise our clients to have the Private Home Inspector visit the home as soon as possible after getting a signed contract, and to leave enough time for follow-up inspections in the event any are needed.

If you have questions about home inspections or buying a home, please contact us at 314.862.2237 or email us at mjacob@marcjacobesq.com

 

At a residential home closing, both Buyer and Seller can expect to sign a number of documents. Depending on whether the Buyer has obtained financing or not (through a bank or other conventional lender), the Buyer’s stack of documents may be much larger than the Seller’s stack.

The Buyer will be required to sign some documents related to their loan (Lender Documents), and some documents related to the actual property (Title Documents). Here are some of the documents the Buyer may sign or initial at closing:

• Lender Documents
  • Promissory Note
  • Deed of Trust (sometimes referred to as the mortgage)
  • Copy of previous tax returns
  • Copy of original loan application
  • Various lender disclosure documents
  • Acknowledgment that Buyer received the appraisal
  • Names affidavit
  • IRS Form to obtain future tax returns
  • An agreement to fix errors in the closing packet

• Title
  • HUD-1 Closing/Settlement Statement
  • Various Title Company disclosures
  • Copy of marked-up title insurance commitment, upon which the title insurance policy will be based
  • Notice of real estate tax assessment changes
  • Some Title Companies ask the Buyer to sign a document indemnifying them from damages for Title Company negligence.
  • In certain municipalities (for example St. Louis City), Buyer must also sign the deed conveying the property.

The Seller generally only needs to sign Title Documents, such as:

• Deed of conveyance
• Various title disclosures
• HUD-1 settlement/disbursement statement

The Consumer Protection Financial Bureau published a short pamphlet explaining some of the closing documents. It can be accessed here.

If you have questions about your documents, or would like an attorney to review your closing documents, please contact us at (314) 862-2237 or at mjacob@marcjacobesq.com

In some Missouri home sale transactions, the Buyer is unable obtain a loan from a bank or other conventional lender. In those cases, it may make sense for the Seller to finance all or part of the purchase if the Seller owns the property free and clear of all liens/loans. This is often referred to Seller take-back financing.

When the deal is structured this way, a number of documents are needed. Among them are 1) Promissory Note, and 2) Deed of Trust 

The Promissory Note is the document that shows a debt exists between the Buyer and the Seller for a certain amount of money and on certain terms.

The Deed of Trust, referred to as a “security instrument,” is the document that secures the property for the benefit of the Trustee (an agent of the lender).   Deeds of Trust are recorded with the appropriate county Recorder of Deeds and create a lien against the property, and are used to foreclose on the property if the borrower fails to pay.

Since every deal is slightly different, some deals may also require additional documentation, such as an asset purchase agreement (if Buyer is keeping any personal property of Seller), or a security agreement (if there is certain equipment or home-based business items that are part of the sale).

Note that if there is a primary lender (a bank or other conventional lender), and the Seller is only financing part of the deal, the Buyer must also obtain the primary lender’s consent to the Seller’s loan.

If you have questions regarding your situation, or need to document Seller financing, please contact us at (314) 862.2237 or at mjacob@marcjacobesq.com

There are many ways Buyers can find a private residential home inspector for a home purchase. You can find one through word of mouth, a web search in your locality, or a referral from your real estate agent or attorney. Websites that review local service providers may also review local home inspectors. Or you can also contact organizations that certify home inspectors, such as American Society for Home Inspectors (ASHI), or pick an inspector from their website.

Generally, a private home inspector can suggest other inspectors the Buyer may need, such as for termite, roofing, plumbing, radon, lead-based paint, etc. Alternatively, the Buyer can seek out these other inspectors as needed, through other sources. 

We feel it is very important for Buyers to hire their own private home inspector. A private home inspector should provide a detailed inspection report, along with digital images. This helps provide the Buyer clarity and an understanding of the inspection issues, which are important to have when it comes time to negotiate over them.

We recommend that our clients obtain a private home inspection as soon as possible after entering into a sale contract (or even before if possible). Once inspections are completed, and within the time frame provided for in the contract, the Buyer will generally submit an Inspection Notice or similar document requesting repairs or other concessions. Buyer’s attorney can more clearly inform the Seller as to repairs or other concessions the Buyer wants, when accompanied by a clear inspection report that contains digital images

If you have questions about hiring a home inspector, or would like to discuss inspection issues, please feel free to call us at 314.862.2237 or contact us at mjacob@marcjacobesq.com

We advise all of our clients to get a gas company inspection directly from the gas company that provides gas service to the home. We feel this is important for a number of reasons:

• If the home does not pass inspection, the gas company could shut off service;
• Some localities may not allow you to obtain an occupancy permit without passing a gas inspection;
• Gas issues are almost always safety issues, and should be addressed before the closing date;
• Litigation over gas issues can be extremely time consuming and expensive.

One of the most common standard sale contracts we see in St. Louis County, Missouri, used to include a paragraph obligating the Seller to obtain a passing Laclede Gas Company inspection no later than closing. This obligation has recently been removed from the standard contract. So when working with home purchasers, we always add this language back into the contract, obligating the Seller to obtain a passing gas inspection.

Be aware, however, that because it is no longer a standard part of the contract, lenders have become accustomed to allowing Buyers to purchase homes without passing a gas inspection.

This leaves Buyers in an unfortunate position of either:

• Obtaining the inspection themselves, but not necessarily having any ability to negotiate over that inspection with the Seller;
• Forgoing the gas inspection, even though it may be a safety issue or lead to future litigation; or
• Getting the inspection, but risking the home does not pass. In this situation the lender may refuse to close until the inspection is passed, even if the cause of the failure was not a safety issue. This will result in a potential delay to closing.

Despite these risks, due to the dangers to Buyer stated above, we continue to advise our clients to make it the Seller’s obligation to obtain a passing gas inspection, prior to closing.

If you are dealing with a similar situation, please contact us at 314.862.2237 or email us at mjacob@marcjacobesq.com

Whether one party to a contract has the right to force to the other party is referred to as Specific Performance.

Generally in a home sale contract, the Buyer does have the right of Specific Performance, meaning they can force the Seller to sell them the home. This is because the law sees land, or the real property, as unique. Therefore, there is no adequate substitute for it.   A Seller must specifically perform the contract and sell the property to the Buyer if the contract so indicates.

What happens if the Buyer refuses to buy? Can the Seller force them to buy the property? Here, the damages are really monetary in nature. The Seller was expecting to get paid a certain mount of money, and now the Buyer is backing out. In this situation, the contract may give the Seller the right to keep the earnest money. Earnest money is the amount of money the Buyer puts down in the event they breach the contract. Alternatively if the contract allows for it, the Seller can sue the Buyer for other monetary damages.

We have not seen residential real estate contracts that give the right of Specific Performance to the Seller, allowing them to force the Buyer to buy the property. That is not to say such contracts do not exist. If they do, however, we do now know if such a right is enforceable.

When a Buyer considers walking away from a deal, the Seller faces a financial loss. In these circumstances, the Seller, their agent, and likely their attorney will exert significant pressure on the Buyer, and may even threaten litigation, in order to compel the Buyer to go forward with the deal.

Buyers in these situations should recognize there is a danger that if they breach the contract, they may be responsible for the Seller’s legal fees if litigation ensues and the Buyer loses.

If you are considering breaching a real estate contract, or believe the other side has breached, we strongly advise seeking legal advice prior to doing so. We assist numerous clients in similar situations. Please contact us at 314.862.227 or email: mjacob@marcjacobesq.com

Many home sale contracts contain a provision allowing the Buyers to obtain private inspections. This period is often referred to as the “Inspection Period” or the “Due Diligence Period.” The Buyers usually have until the end of this period to submit an Inspection Notice to the Seller. If they don’t, the Buyers risk waiving their rights regarding inspection issues.

In most typical cases, it very important that inspections are scheduled as soon as possible after the contract is signed in order to meet this deadline. This will give the Buyers’ lawyer sufficient time to prepare an Inspection Notice that will be legally binding and meet the Buyers’ needs. Depending on how complicated the issues are, Buyers’ attorney may need to review the inspection report or draft an addendum to the standard Inspection Notice used by real estate agents.

This Inspection Notice is then sent from the Buyers (or their attorney or agent) to the Seller, requesting that the Seller make repairs, reduce the sale price, or pay a portion of Buyers’ closing costs for the deal to go forward. (Be aware that if the Buyers are requesting a monetary change, their lender may require a Contract Amendment).

 There are a number of reasons why Buyers send Inspection Notices.   These include:

• The Buyers learn through private inspections that the home is not in as good condition as initially thought;
• The Buyers do not have the money to make certain repairs, based on contractor estimates obtained;
• The Buyers feel that certain repairs are the Seller’s responsibility;
• The Buyers believe that the Seller is in a better position to fully explain the scope of the problem and provide access to a contractor;
• The Buyers needs further financial concessions in order to proceed to closing.

If you would like us to prepare an Inspection Notice for you, or have questions about one, please call us at 314.862.2237 or contact us here.

 

Yes – it is very smart to have an attorney review the survey for a home purchase. A survey is the technical depiction of the land and home that you are planning to purchase. The survey shows: boundaries between you and your neighbors; structures on the land (called “improvements”); encroachments onto your property by your neighbors; and whether your property encroaches on your neighbor’s land.

An attorney’s review of your survey is useful primarily for two reasons:

• To help you understand what the encroachments on your land are, and advise you whether yours or your neighbor’s future building plans could result in future encroachments
• To reconcile the survey with the title insurance commitment in regard to:

• The legal description;
• Encroachments over which the Title Company will not issue insurance;
• A party’s proper legal name the Title Company is requiring to sign a waiver or affidavit allowing you to get coverage over a particular encroachment.

Attorneys can also be helpful in other issues that arise with surveys. Surveys identify common areas, such as in a condominium or a subdivision, setting forth where your property ends and the common area begins. Only after reviewing the survey can your attorney negotiate with the Title Company over what they will cover in your policy.

Attorneys can also assist when there are competing surveys. Often surveyors disagree where a property’s boundaries are. After reviewing the competing surveys, an attorney can work with the surveyors to reconcile where the actual property boundaries exist.

We recently helped a client buying a home obtain full title coverage by having their neighbor’s surveyor go back and reset their surveyor’s pin to be more in line with the pin our client’s surveyor had placed.

What can happen if you don’t have an attorney review the survey? Without having an attorney review the survey, you may misunderstand a very critical part of your property line, or that of your neighbors. This can be costly and sometimes disastrous. Litigation can develop over boundaries, maintenance easements, fences, utility easements, etc., all of which are very costly.

A potential client who was selling a large and expensive suburban/rural parcel approached us about the following situation. After they put their house up for sale and relocated to another state, their agent informed them that a local utility company was out at the property, marking off part of one of the structures to be knocked down.

It turned out that the structure encroached on the utility company’s easement. Potential clients were understandably livid because the demolition of this structure would virtually cut the value of their property in half.

When the clients initially bought the property, the easement showed up on the survey, but a faulty reading of the survey by their real estate agent led this family to believe that none of the property’s structures encroached on the easement. This situation could have been avoided had an attorney reviewed the survey. Unfortunately, at this point, there was very little that could be done to help.

Getting help on the front end and knowing what you are getting into with regard to the survey is really the best way to have issues addressed and questions answered.

We review surveys on behalf of many clients. If you would like to discuss your situation with us, please call us at 314.862.2237 or email us at mjacob@marcjacobesq.com

As you might imagine, costs vary depending upon location and the attorney. Many attorneys have a policy to charge hourly rates, regardless of the matter; other attorneys use flat fees. A Home Closing is the type of matter that we  believe can be set as a flat fee.

The actual price will depend upon your locality within Missouri and any anticipated difficulties that might occur at the closing. A safe range of prices, however, is somewhere between $250-$750. This price may or may not include the attorney’s travel fees to and from the closing.

Prior to hiring an attorney, a potential client should understand the terms, scope and cost of representation. The fee agreement (a contract between you and your attorney for the services rendered) should also be signed either before the closing or at the very least, at closing.

There are many reasons why having an attorney at the closing is very helpful. Specifically, Attorneys:

• Review the Title Commitment upon which the final Title Insurance Policy will be based, explaining what the Title Company will not cover in their Title Insurance Policy.
• Decipher the HUD-1 Closing Statement; get clarification from the Title Company and make corrections to any mistakes on the HUD-1.
• Ensure all Grantors are listed property on the granting deed. (Often the actual Grantors are not the party the buyer is dealing with – the Grantors could be a Trust, Executor of an Estate, Third-party investor, etc.)
• Determine whether updates need to be made to the lending documents. A lender will often ask the home purchaser (borrower) to re-sign the lending documents at closing. This packet of documents can be between 25-100 pages, depending on the lender. If any circumstances have changed since the borrower’s application, the borrower may be under some obligation to notify them of the changes that took place.

Having a Lawyer at your side during a home closing is a smart move to make. We attend numerous home closings on behalf of clients.

If you would like us to attend one for you, or wish to inquire about our residential home services, please contact us at 314.862.2237 or email us at mjacob@marcjacobesq.com