Massachusetts real estate closing attorney

Superman's_classic_poseLike Superman, A Use and Occupancy Agreement Can Save the Day, But Be Aware of the Risks!

Tom and Mary Ryan, and their two little kids, Abigail and Jake, are relocating from California to the Boston area so Tom can take a job with a local tech company in Burlington. They have already sold their California home, and have been living in a cramped rented condominium in Santa Monica for two months already. Their loan has hit some snags because Tom was out of work for half of 2013, and had some IRS issues, although he is on solid footing now with his new job. The closing is scheduled for the end of this week and they have their cross country movers booked and scheduled and their life is now packed in boxes. Just when they finish packing their last box, their loan officer calls with somber news. “Tom, unfortunately, our underwriting department is dealing with delays getting your tax transcripts from the IRS. We are going to have to push back the closing for about a week. I’m so sorry.” Canceling the movers will cost several thousand dollars, and they will have to cancel furniture shipments as well. To make matters worse, new tenants are supposed to move into Tom’s rented condo unit right after they leave.

While all characters appearing in this work are fictitious, and any resemblance to real persons, living or dead, is purely coincidental, Tom and Mary are in trouble. With the prevalence of back-to-back closings and unforeseen underwriting issues and title defects, these situations are not uncommon. And with new TRID closing disclosure rules coming online in August, which are bound to cause even more loan approval delays, we may be seeing more of these situations in the months to come.

Fortunately, there is a solution to this situation. The sellers are willing to let the Tom, Mary and family move into the home prior to the closing under a Use and Occupancy Agreement. This will enable the buyers to complete their move, move into the house, but before the actual closing. A use and occupancy agreement, however, is not without its risks and downside, which I will discuss below.

One of the most important aspects of a Use and Occupancy Agreement is what it is versus what it is not. The agreement should specify that it creates a mere license to occupy the premises, not a tenancy or a landlord-tenant relationship. This will make it easier to remove/evict the occupants if something goes wrong. In any event, if the sellers are forced to remove the occupants, they will still have to resort to judicial eviction proceedings, which in Massachusetts can potentially take several months. This alone is the biggest drawback of a Use and Occupancy Agreement. The seller should always put language in the agreement that the buyers will be responsible for all attorneys’ fees and costs in case of an eviction.

The parties have to agree on a rental rate, typically based on the fair market rent for the premises or the mortgage and carrying costs. Websites such as www.rentometer.com can give you an idea of what a fair rental rate should be. Your Realtor should give you guidance as well. The rent should be divided by 30 for a per diem basis. You can also charge penalty rent if the term is extended past the original deadline.

The sellers should also include general indemnification language providing that “during the period of occupancy, Buyers shall maintain the Premises in good, clean condition and shall not make nor suffer any strip or waste to the Premises, nor make nor suffer any unlawful or improper use of the Premises and Buyers agree to indemnify Sellers and save them harmless from all liability, loss or any damage arising from such additions, alterations, strip, waste or unlawful or improper use, any nuisance made or suffered on the Premises by Buyers, including their family, friends, relatives, invitees, visitors, agents, or servants, or from any carelessness, negligence or improper conduct of any person.”

Lastly, the buyers should do their pre-closing walk through before they move in under a Use and Occupancy, because once they move in, the home will be a mess for awhile. That way, everyone will be on the same page as far as the property condition goes on the date of move in.

Many attorneys advise clients never to agree to Use and Occupancy Agreements. I am not one of those attorneys. With any risk, it depends on the situation. The sellers need to be comfortable that any delays will be resolved favorably and quickly. Sellers also need to appreciate that despite any language in the agreement, it could take months to remove an occupant if things so south. As long as everyone understands the risks, a Use and Occupancy Agreement can be a life saver.

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Massachusetts Real Estate Taxes

The Massachusetts closing attorney is responsible for verifying the correct amount of real estate taxes assessed against the property, collecting sufficient amounts to pay for any outstanding and/or upcoming tax bills, and to adjust between buyer and seller any payments already made by the seller. The way in which Massachusetts real estate tax bills are due and payable, however, often creates confusion for parties at the closing.

For most Massachusetts cities and towns, real estate tax bills are mailed and taxes are collected on a quarterly basis. The fiscal year for property tax is July 1 to June 30. The schedule of mailings, due dates, and the three months each payment covers is outlined on the following chart:

Quarter    Mailed By  Due Date    Payment is For
1st June 30 Aug 1 July, Aug. Sept.
2d Sept. 30 Nov. 1 Oct., Nov, Dec.
3rd Dec. 31 Feb. 1 Jan, Feb., March
4th March 31 May 1 April, May, June

 

 

 

 

The confusion is caused because most folks are not aware that the tax bill which is due on Aug. 1 covers taxes due for the preceding month of July and the following month of September.

So, if you are closing on March 1 and the seller has already paid the tax bill due on Feb. 1, the buyer will be responsible for an adjustment due the seller for the 31 days of March.

Now, here’s the kicker. As part of the mortgage escrow account requirement, explained below, the lender will most likely require the borrower to pay the real estate taxes due May 1 in advance, thereby requiring the borrower to bring a lot more to closing than he or she was expecting. The lender wants to ensure that all real estate taxes are paid in advance so no tax lien gets filed on the property. This is very common, but not often explained by the loan officer ahead of time, thereby falling on the closing attorney to break the “bad news.”

Mortgage Escrows

All lenders are now requiring that borrowers establish an escrow account for the payment of real estate taxes, homeowner’s insurance, and mortgage insurance (if lower than 20% down payment). The escrow account is like an insurance policy to ensure that real estate taxes, insurance and PMI is paid by the homeowner. The escrow account will typically be funded with up to 3-4 months of payments in advance, paid at closing. Some lenders will allow for a waiver of the escrow account, but often with an increase in the interest rate.

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Richard D. Vetstein, Esq. is an experienced Massachusetts real estate attorney. They can be reached by email at [email protected] or 508-620-5352.

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I cannot believe I’m writing this post, but yes it’s true, the real estate market in Greater Boston, Massachusetts has now come full circle and bidding wars are back. Don’t believe me? Just read this Boston Globe article from today.

Now that bidding wars are back, buyers and sellers have questions, so we’ll try to answer them here. I’ve also asked a few local real estate agents to offer their expertise as well.

What Are The Legal Issues Surrounding Bidding Wars?

A bidding war arises when there are several competing offers for a listing at the same time. There are really no hard and fast legal rules with bidding wars. Contrary to popular belief, a private seller in Massachusetts is not legally obligated to accept the highest offer made during a bidding war. A seller can be as financial prudent or as irrationally arbitrary as she wants in deciding which offer to accept. A seller may decide to forgo the highest offer in favor of a lower offer due such factors as the financial strength of the buyer (i.e., a cash buyer), because the buyer waived inspections, or simply because the buyer wrote the sellers a lovely letter about how wonderful their home is! (Read on for one agent’s advice on letter writing).

Legally, an offer is simply an invitation to negotiate, and provides a buyer with zero legal rights to the property. An offer does not create a legally enforceable contract — unless it is accepted and signed by the seller.

For real estate agents involved in bidding wars, they have an ethical and fiduciary duty to get the highest and best offer for their sellers. There is nothing illegal about a seller or their agent creating a bidding war, so as to pit one bidder against each other. A listing agent is doing a good job for their client in creating such a market for a property. Ethically, a real estate agent must be truthful and honest when communicating with all prospective buyers and cannot make any material misrepresentations, such as lie about an offering price. Agents must present all offers to their clients, however, the ultimate decision to accept an offer always remains with the seller.

There are different ways to manage a bidding war, and again, there are no special legalities for it. Some agents will set a date by which all preliminary bids have to be in. If there are only two bidders, an agent can go back to the lowest bidder and ask if he or she would like to re-bid. An agent can continue that process until one of the bidders backs out. If there are more than two bidders, some agents will set a second round of bidding with a minimum price of the highest bid in the preliminary round. If no one bids in the second round, the agent can return to that high bid. Bidding wars are fast moving, so buyers need to be able to react quickly.

Generally, disgruntled buyers who lose out on bidding wars do not have a legal leg to stand on — unless their offer was accepted and signed by the seller or there is clear proof an agent lied about something important. That is why making your offer stand out in a bidding war is so important.

Buyers: How To Make Your Offer Stand Out In A Crowd

In a bidding war, buyers ask how can they maximize their chance to be the offer the seller accepts? Gabrielle Daniels, of Coldwell Banker Sudbury, offers this great advice on her blog, LiveInSudburyMa.com:

  • Make your offer STRONG. If you know that there are other offers on the property, make your offer financially strong as possible. If you believe the house is worth asking price, offer asking price. Forget about the TV shows that tell you to offer 90 percent of asking. That is ridiculous – UNLESS that is what the house is worth. Every situation is different. Every house is worth something different. There are no “general rules” about what to offer.
  • Be prepared. Have your pre-approval ready. Sign all of the paperwork related to the offer (seller’s disclosure, lead paint transfer, etc.) Write a check, leave a check with your agent. It is better than a faxed copy of the check. Don’t leave any loose ends.
  • Show some love to the house (and the seller). Write a letter to the sellers, tell them why you love the house and why you are the best buyer for the house. Sure, this is a business transaction, but it is one of the most personal business transactions in which you will be involved. Your real estate agent should be able to help you with this.

For more great tips for buyers involved in a bidding war, read Gabrielle’s post, Multiple Thoughts On Multiple Offers.

Sellers, How Can You Take Advantage of Bidding Wars

For sellers in a bidding war market, it all comes down to pricing, as Heidi Zizza of mdm Realty in Framingham explains on her blog, MetrowestHomesandLife.com:

I had a house listing in Natick this past year. The house valued out to around $620,000. We could have gone to market at $629,900 or $639,900 and had many showings that eventually would land us an offer around $610,000 or so. We figured that at that price it would take the average days on market which was (if memory serves correctly) close to 90 days. We decided to go to market at $599,900. The house got so much attention we had a HUGE turnout at the first showing/Open House and had 4 offers by that evening all competing and all over asking. The highest bid was $620,000 and we sold the property in one day. You too can do the same thing. Market your house at a price that is so attractive you will be best in show. Your buyers will let you know it, and you will definitely get an offer, maybe even several!

For those of us in the real estate business who have weathered the storm of the last 4-5 years, this is “all good” as we say! The more bidding wars, the better!

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Richard D. Vetstein, Esq. is an experienced Massachusetts real estate attorney. They can be reached by email at [email protected] or 508-620-5352.

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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.

Seller Attorney Responsibilities

Customarily, a seller’s attorney in Massachusetts has the following responsibilities:

  • Generate the first draft of the purchase and sale agreement
  • Order mortgage payoff statements
  • Assistance with any title clearing efforts such as obtaining old mortgage discharges, death certificates
  • Draft the quitclaim deed and power of attorney
  • Prepare trustee’s certificate
  • Obtain condominium 6d certificate, smoke detector certification, final water/sewer readings (Realtor typically will obtain these as well)
  • Representation of seller at closing

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

 

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