Frequently Asked Questions About Closings

In my twenty years of practicing law, I've heard a lot of the same questions regarding real estate. Hopefully the faq's listed below will help you to better understand the closing process:

1. The offer is accepted and we have a signed contract, what happens next?
2. What is "attorney review"?
3. What are some of the changes that are modified on the initial contract?
4. My realtor prepared the contract, but they aren't a lawyer, is there anything else that you recommend that I should add or revise in the contract?
5. What happens if this doesn't go through? Do I get my deposit money back?
6. When do I have to give you the rest of the initial deposit and who should I send this to?
7. What are the closing costs and what is an estimate of how much that I should allow for them?
8. What type of insurance will I need?
9. Who verifies that the building itself has the proper amount of insurance?
10. I heard you need flood insurance in Hoboken, is this true? What about the other cities in Hudson County?
11. What if I can't get a mortgage?
12. What if there is something wrong with the property and I decide that instead of having the seller correct it, that I want to get out of the deal?
13. I have to close by a certain date, can you guarantee this date?
14. What if the seller changes their mind and refuses to sell?
15. What if they keep showing the property during attorney review and someone else makes an offer?
16. My realtor said they can add a provision asking the seller to agree to no more showings, will they honor this?
17. When do you review the condo association's financials? What if they are really low?
18. Who provides these documents?
19. How do I know if there are any special assessments on the building?
20. I am buying a brand new condo, what if it doesn't get completed on time? I am trying to lock into a mortgage rate and I am concerned that if I have to extend it that the rates might go up?
21. For brand new construction, how do I figure out what the taxes will be?
22. If I buy my condo for more than the assessed value, will my taxes increase?
23. What is tax abatement?
24. Are these payments deductible if they are tax abatements?
25. How long is all of this going to take and what other information do I need to provide to you?
26. I am the seller and have a signed contract but I am nervous that the buyer can't come up with the money, as I only have a pre-approval letter from the bank at this time, how do I protect my self here?

1. The offer is accepted and we have a signed contract, what happens next?

• When the contract is signed by both sides, it gets delivered to the buyers and sellers attorney. Then attorney review begins.

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2. What is "attorney review"?

• Within 3 business days of the receipt of a fully signed contract, either or both attorneys can send letters to the other attorney either accepting the contract as is, or rejecting the contract unless certain changes are made to it, or asking that the contract be modified for various procedural ways that don't directly impact the validity of the contract. For instance, instead of rejecting the contract, I accept it with the listed changes but until both sides agree on all issues that each side brings up, attorney review continues and can last as little as one day or as long as one month.

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3. What are some of the changes that are modified on the initial contract?

• Besides modifying the mortgage contingency and closing date, rejecting any set amount of damages for breach of the contract (which are called liquidated damages), detailing the responsibilities of the buyer and seller, as well as establishing a threshold of disrepair that would accumulatively allow for the cancelling of the contract. It would also include, basically adjusting the respective rights and obligations of both parties. This is done through what is called a "rider" to the contract which is attached for the buyer and seller.

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4. My realtor prepared the contract, but they aren't a lawyer, is there anything else that you recommend that I should add or revise in the contract?

• The contract that your realtor prepared was reviewed and agreed upon by a committee of lawyers and realtors. Standard riders address the issues that I would normally change in the contract.

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5. What happens if this doesn't go through? Do I get my deposit money back?

• As long as you acted in good faith in a timely manner according to the terms of the contract, you will be able to have your money returned if the lawyers can't agree on the contract during attorney review, if there are major problems with the budget or condo master deed, if inspections uncover a substantial defect that the seller does not want to repair and if you can't get the mortgage on the terms and conditions set forth on the contract if you made a good faith effort to get the mortgage. The key word here is "good faith". If you enter into a contract and two weeks later decide that you like another house better, you very well might be subject to the payment of some damages. But of course, my job as your attorney is to minimize any damages that you might get.

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6. When do I have to give you the rest of the initial deposit and who should I send this to?

• Usually the rest of the initial deposit (which would total 5-10% of the purchase price) needs to be delivered to the seller's attorney within 10 days after the attorney review. All that is needed is a personal check that is made out to the seller's attorney's trust account, i.e. "Robert jones attorney trust account" which should be brought to my office upon which I will then mail out with a letter to the seller's attorney.

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7. What are the closing costs and what is an estimate of how much that I should allow for them?

• The entire closing process is a very common transparent and regulated transaction. You will be given good faith estimates of your fees when you go to obtain a mortgage which approximate the total cost of the closing. However, the final cost of the closing depends upon how much escrows are taken by the bank for taxes (which can be up to 5 months), how much the bank wants for interest on the day of closing until the end of the month. Since mortgages are paid a month behind you need to pay interest only on the amount borrowed on the day of closing until the end of month, with the first payment being due at the beginning of the next month. Title work and title searches are fees that are regulated by law but range from $1500-$3500, filing fees to file the original mortgage and note are usually around $450-$650, depending on whether or not a second mortgage is taken. Generally speaking, a closing of $300,000 will cost about (out of pocket) $5,000 - $6,000; a closing of $500,000 will be $7,000 to $8,000. These are very approximate estimates but all of the costs will be fully disclosed and set forth on the appropriate documents.

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8. What type of insurance will I need?

• A condo association has flood, liability and fire insurance on the entire building from the back side of the sheet rock walls. A purchaser needs to have fire and liability insurance that will cover his property from the sheet rock in, which is usually about $400 - $600 annually.

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9. Who verifies that the building itself has the proper amount of insurance?

• The bank verifies this information.

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10. I heard you need flood insurance in Hoboken, is this true? What about the other cities in Hudson County?

• Considering that Hoboken was a swamp with a river going through it, there are some parts of the city that will cover flood insurance, which is separate from all the other insurances that are available on the property.

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11. What if I can't get a mortgage?

• Again, if you can't get one because the building doesn't appraise property or lawsuits are pending to the association, you will be entitled to your money back in full unless you failed to make a good faith effort to get the mortgage.

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12. What if there is something wrong with the property and I decide that instead of having the seller correct it, that I want to get out of the deal?

• Assuming the seller does not want to let you out of the contract, you will only be entitled to cancel the contract if the damage to the unit is significant.

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13. I have to close by a certain date, can you guarantee this date?

• I can guarantee the closing of any date that your bank requires. The big problem is the title work. Many people don't understand that title work actually consists of searches of the city, county, state and surrogates office, and deed rooms. And, these searches do take time. However, in today's real estate market with people buying and selling condominiums we often will order the title work immediately and the information will be readily available since our title company will have done other transactions in that building.

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14. What if the seller changes their mind and refuses to sell?

• If the seller randomly decides to get out of a contract, they can be sued for damages which can be a lengthy and frustrating process. However, the law allows for the filing of a lis pendens, which would prevent the seller from selling the property to another entity.

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15. What if they keep showing the property during attorney review and someone else makes an offer?

• Despite the best efforts of realtors to put in the language of "do not show while attorney review is pending" clause, the reality is that under general circumstances, the seller can continue to show the properties and could in theory take a higher offer. However, if realtors are involved, there is so much momentum that very rarely would a seller play with the realtors livelihood in such an arbitrary way.

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16. My realtor said they can add a provision asking the seller to agree to no more showings, will they honor this?

• The seller is not legally obligated to honor that term of the contract since Attorney Review is Absolute, but in practice it usual that the realtors stop showing it.

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17. When do you review the condo association's financials? What if they are really low?

• The financials are reviewed w/I 5 days of the receipt of the documents from either the condo association or the seller's attorney. Very rarely is there anything uncovered in the review of the financials or condo documents that would call for the cancelling of the contract.

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18. Who provides these documents?

• Either the seller, seller's realtor or management for the condominium.

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19. How do I know if there are any special assessments on the building?

• We will know about special assessments since they must be disclosed pursuant to our attorney review letter as well as being notified of them in what is called the condo management letter which comes from the management company which details the monthly expenses and any other expenses such as an assessment.

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20. I am buying a brand new condo, what if it doesn't get completed on time? I am trying to lock into a mortgage rate and I am concerned that if I have to extend it that the rates might go up?

• If you are buying a brand new condo, it most likely will not be completed on time and unfortunately if your rate expires, you will have to pay a higher rate. I must add, however, that in a fluent changing world of real estate, we have fully entered into a buyers market and very often in many buildings, the developer will offer a binding mortgage commitment that will be effective and last until the building is completed.

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21. For brand new construction, how do I figure out what the taxes will be?

• Usually a brand new construction estimate of taxes will be set forth in the public offering statement. Basically speaking if there is no tax abatement, in Hoboken you multiply the purchase price by 48% and multiply that amount by the tax rate which is approx. $33 per thousand of what is called the adjusted assessment which is the purchase price X the 48% so you won't be paying taxes on the full value of your unit, only 48%. The math is done as follows....if a condo sells for $500,000, you multiply that by 48% which is approx. $250,000 and then multiply by $33 giving a tax of $7500. The 48% is a ratio that is established by the New Jersey Department of Taxes that is derived by multiplying the total of the prior year's sale prices of closings by the assessed value of each of those closings. And since the property in Hoboken has not been assessed since 1986, the 48% number is the derived multiplier to equalize the tax payments between old and new properties.

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22. If I buy my condo for more than the assessed value, will my taxes increase?

• No, your taxes will only increase if you take out a building permit and improve the property which will then trigger the tax assessor to visit your unit or rely on the information supplied to the building department and increase your assessment which will then increase your total taxes to be paid. However, the city is due sometimes soon for an evaluation for all the property in the city of Hoboken, at which time the taxes that each property owner pays will be more fairly in place with the current market value of each unit.

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23. What is tax abatement?

• Tax abatements are usually the result of a PILOT program (payments in lieu of taxes agreement), whereby the developer enters into an agreement with the city, which allows the project to direct the taxes collected on the units only to the city budget and not to the school budget or the county budget. This is in a town like Hoboken, where many of the new residences don't have children in the public school system and do not avail themselves of any county programs it becomes a win/win situation for all involved. Since the city will get more money than if regular taxes were paid and the developer would be able to market the project with the benefit of the lower taxes.

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24. Are these payments deductible if they are tax abatements?

• Yes, fully deductible.

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25. How long is all of this going to take and what other information do I need to provide to you?

• Usual closing takes approximately 2 months, however it can be done in as short as two weeks or in the case of new construction, 2 years. Most of the documentation that you will need to provide will be to the mortgage company. Usually I don't need much more besides the contract and commitment letter from the mortgage company prior to the closing. But as you might expect, there are many exceptions to this standard rule.

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26. I am the seller and have a signed contract but I am nervous that the buyer can't come up with the money, as I only have a pre-approval letter from the bank at this time, how do I protect my self here?

• You need to discuss this matter with your realtor and attorney. A few things that can be done are to insist that the appraisal is done immediately and get the telephone number of the appraiser to get his input on the value of the property. Insist upon the seller using a mortgage company that you know and can directly deal with. Ask for the credit score from the buyer and verify their employment, all of which should have been reviewed by the mortgage broker who issued the initial letter. Call up this person to see if they did their homework.