MA real estate attorney

This week, a very interesting decision involving the negotiation of a residential purchase and sale agreement came down from the Massachusetts Appeals Court in Coviello v. Richardson. Click here to view the decision. The case highlights the need for realtors and real estate attorneys to be proactive with respect to mortgage contingencies and requests for extensions.

The Facts

In the case, on February 12, 2008, buyer (Coviello) and seller (Richardson) signed the standard form Offer to Purchase, which provided that a Purchase and Sale Agreement would be executed by 5:00pm on February 26th. Under the mortgage contingency clause of the offer, which gives the buyer the right to cancel if she cannot obtain financing, the buyer was required to secure a firm mortgage commitment by February 29th. The realtor, who prepared the offer, made the first mistake here: requiring her client, the buyer, to obtain a firm mortgage commitment not even 2 weeks after the parties signed the offer. This was and remains completely unrealistic.

Predictably, the buyer and her broker had immediate concerns that they would be unable to meet the mortgage commitment deadline. The broker asked the buyer’s attorney, Scott Kriss, if he would ask the seller to agree to extend the commitment deadline for an additional week. According to the decision, the request was not immediately conveyed to the seller.

Two hours before the 5:00pm deadline to sign the purchase and sale agreement, Attorney Kriss sent an email to the seller’s attorney, Alan Sharaf, requesting the extension. The seller, who was dealing with a high-risk pregnancy, refused to extend the deadline. No agreement could be reached, and there was no tender or signing of the purchase and sale agreement. (It does appear that the pregnant seller got “cold feet” and backed out of the deal–the request for a one week extension is eminently reasonable and wouldn’t have exposed her to any significant risk).

The buyer sued, claiming that the seller’s refusal to agree to the extension was a breach of the deal. The Land Court initially ruled in favor of the buyer, but the Appeals Court overruled the decision in favor of the seller, holding that a jury would have to decide whether the seller repudiated the contract or would have proceeded with the original terms. The case will be heading to trial.

Take Away

In our opinion, the lesson for realtors and attorneys from this case is (1) make the mortgage contingency dates workable in the offer, and (b) if you are asking for an extension at the 11th hour, protect your buyer in case the seller refuses to agree.

First, the realtor should have used a more realistic mortgage contingency deadline. In the current underwriting environment, realtors should allow at least 30-45 from the signing of the offer for a mortgage commitment.

Second, in our opinion, the buyer’s attorney’s apparent delay in asking for the extension until the 11th hour certainly didn’t help the situation. He could have protected the buyer a lot more had he coupled the request for the extension of the mortgage commitment deadline with either (a) notice that if the seller would not agree, the buyer would opt out of the deal entirely, or (b) a tender of the purchase and sale agreement with the original deadlines (assuming the buyer would take on the risk of being unable to make the deadlines). This would have “boxed in” the seller to either agree to the extension or go through the deal, essentially calling her bluff. At least it would have enabled the buyer to have been in a much better position for litigation because now the fight is over whether the seller would have gone through the original deal. Granted, it appears that the pregnant seller had already made up her mind that she wasn’t going through the deal, no matter the reason.

To the credit of the realtor and attorneys involved, it’s much easier for me to play Monday morning quarterback.

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Signing or not signing?A lot more than you might think. Plus, Massachusetts law now requires attorneys to preside over residential real estate closings.

Many buyers and sellers often wonder what a real estate closing attorney does other than conduct the closing. Well, quite a bit of work actually.

The closing attorney acts as the “quarterback” of the closing process, performing many time consuming tasks preparing a transaction from intake to closing. (Important note: many borrowers don’t realize that they may request to select their own closing attorney instead of the bank attorney. The new RESPA rules which went into effect on January 1 encourage lenders to allow borrowers to select from a list of attorneys or their own personal attorney. This will most often save you several hundred dollars because you won’t have to hire a separate attorney to review/negotiate the purchase and sale agreement.

Intake/Title Examination

When the title order arrives from the lender, the closing attorney first orders a municipal lien certificate, which verifies the real estate taxes and other municipal charges on the property. Insurance binders and payoffs of mortgages are also ordered.

The closing attorney is responsible for examining the title to the property. For purchases, the title is researched going back 50 years. The closing attorney carefully reviews the title examination to ensure there are no title defects; if there are any issues, the attorney will work with all parties to resolve them. Some title defects are extremely difficult to resolve. (By law, the closing attorney must provide new home buyers with a certification of title).

Title Insurance

The closing attorney also coordinates the issuance of title insurance to the lender and the new home buyer. I always recommend that buyers obtain their own title insurance policies because even with the most accurate title examination, there can be hidden title defects that could derail a later sale or refinance. Look no further than the Land Court Ibanez foreclosure mess for what can happen when you don’t get an owner’s title policy.

The Closing

As the closing day approaches, the closing attorney will coordinate with the lender for the preparation and delivery of numerous documents to be signed at closing, including the mortgage, promissory note, truth in lender disclosures, and most importantly, the HUD-1 Settlement Statement. The closing attorney will also coordinate with the seller to receive the deed to the property, final utility bills, smoke detector/CO2 certificates and condominium 6(d) certificates. As outlined in the Settlement Statement, the closing attorney is responsible for handling a number of issues at closing:

  • Payoff and discharge of mortgages
  • Payment and allocation of real estate taxes and utilities (water, oil, etc.)
  • Payment of realtor commissions
  • Disclosure and payment of lender fees and closing costs
  • Funding of mortgage escrow account
  • Payment of transfer taxes and recording fees
  • Payment of pre-paid interest
  • Distribution of sale proceeds
  • Title V septic certification and condominium 6(d) certification

The closing attorney then conducts the closing. He will explain the numerous loan and closing documents signed by buyer and seller, collect and distribute all funds, and otherwise ensure that the closing is properly conducted.

Post Closing

After the closing, the attorney processes the loan funding, performs a title rundown to ensure there are no changes in the title, then records the deed, mortgage and other recordable instruments. The attorney will also ensure that all paid off mortgages and liens are discharged. Title insurance policies are issues several weeks after the closing.

We are experienced Massachusetts real estate closing attorneys. Please contact us if you need legal assistance with your purchase, sale or refinance transaction.

Here is a great video outlining the closing process from our underwriters at Westcor Land Title-New England.

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title-insuranceIn my opinion, title insurance is an absolute necessity in every real estate conveyance transaction. When I purchased my own house, I even purchased owner’s title insurance although I’m an experienced real estate attorney! I feel so strongly about this that I have declined to handle closings in the very rare instance where a buyer has insisted on declining owner’s title insurance.

The problem is that most home buyers don’t know what title insurance is or what it covers, and only see it for the first time on the closing settlement statement. Closing attorneys and title insurance companies need to do a better job explaining the excellent benefits and value of title insurance, so consumers don’t have the perception that it is just another closing cost.

What Is Title Insurance?

Title insurance is policy of insurance (technically an indemnification policy) protecting homeowners and lenders from actual financial loss in the event that certain covered problems develop regarding the rights to ownership of property. While Massachusetts closing attorneys search and certify each title to real estate before a closing, there are often hidden title defects that even the most careful title search will not reveal. In addition to protection from financial loss, title insurance pays the cost of defending against any covered claim.

There are two types of title insurance, lender’s and owner’s policies. Lender’s policies are required by most every public mortgage lender in the U.S., and are typically paid as part of closing costs.  Owner’s policies are optional and paid for by home buyers. I will discuss owner’s policies in this post.

Title Defects:  What Does An Owner’s Policy Of Title Insurance Cover?

The recent foreclosure paperwork mess and the Massachusetts high court ruling in U.S. Bank v. Ibanez are perfect examples of the importance of title insurance. Thousands titles in Massachusetts coming out of faulty foreclosures were rendered defective because of the Ibanez ruling. Those without owner’s title insurance were left to fix the title problems on their own at great expense. Those with title insurance, by contrast, were able to sell their property with the title insurer issuing “clean” policies over the defects.

Here are some other real world examples of how title insurance protects you. I recently represented a condominium seller who was shocked to learn a day before the closing that there were several un-discharged mortgages and liens on her unit left over from the original developer. Fortunately, she had an owner’s title insurance policy which allowed her closing to go forward as scheduled. I represented a young family who was dismayed to learn that the property they were about to buy was subject to the claim of a long-lost heir of a prior owner. The title insurance company agreed to file litigation against the “missing” heir, and clear the title. If title insurance was not available in these transactions, the deals would have been canceled altogether, or the closings would have been delayed by months if not years until the issues were resolved, if at all.

In addition to undischarged mortgages and the sudden appearance of unknown or missing heirs claiming an interest in the property, an owner’s policy of title insurance also covers a myriad of other types of title defects, including:

  • Faulty foreclosures
  • Forged deeds or impersonations
  • Incorrect legal or boundary descriptions
  • Recording errors

There is also a new extended or enhanced coverage policy available from all major title insurance companies which covers:

  • Building permit violations
  • Adverse possession or prescriptive easements
  • Building encroachments
  • Incorrect surveys
  • Pre-existing violations of subdivision, zoning laws, restrictive covenants.

For a full list of just about every conceivable situation covered by title insurance, please read my article: 50 Ways To Lose Your Home.

How Much Does Title Insurance Cost?

Title insurance is a one-time premium paid at closing and is calculated based on the purchase price of your home. The cost today is for s standard coverage policy $3.65 per $1,000 in home value. Enhanced coverage policies run about $4.00/thousand, and provide better coverages (i.e., for boundary disputes) and inflationary protection. Thus, a $500,000 home would cost a one time premium (standard) of $1,825.

Title insurance is a good deal because you pay once and it continues to provide complete coverage for as long as you or your heirs own the property. Those who decline title insurance rationalize that the risk of a title defect is minimal and not worth the premium. That is false. As a former claims counsel for a national title company, I could write a treatise on the different types of title problems I have seen derail closings and drag on for years.

The Role Of The Closing Attorney

The closing attorney ensures that the title examination is done on the property, certifies that the title is “marketable,” and issues the title insurance policy. While all U.S. public lenders require lender’s policies of title insurance, closings attorneys should always recommend owner’s policies for buyers. Attorneys do share in the title premiums generated. However, as I said before, even the most careful title search cannot reveal a hidden title defect that can wreck havoc on any subsequent sale or refinancing of the property.

To borrow from Nike’s old slogan, Title Insurance:  Just Get It.

Please contact me at rvetstein@vetsteinlawgroup.com if you have any further questions about title insurance.

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Beginning with my introduction today by real estate broker extraordinare and Boston.com blogger, Rona Fischman, I will be guest blogging on Boston.com’s Real Estate Blog.bostonRealEstate

I will be answering questions on timely topics affecting Massachusetts real estate law, including home improvement projects, condominiums, landlord-tenant issues, and more.  I am thrilled for the opportunity.  Stay tuned for more.

Rich

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