Sealing The Deal Know What To Expect From The Closing Process

Closings are interesting and emotional transactions. As an attorney who has handled many of them, I can tell you that each one is different. From a legal point of view, they are not especially complex. From an emotional point of view, they can bring out the worst in people. Even though most closings go smoothly, tempers can flair at any moment over small issues. The seller is giving up his or her home and the buyer is anxious to move in and create a new home. This can make the parties, to put it mildly, a little "difficult." Knowing this and the particulars involved in a closing can help you seal the deal with fewer problems.

The Phases of a Closing

Closings take about two months from start to finish. There are three main phases for most closings: going to Contract; submitting a board package and obtaining a mortgage; and closing.

After the parties shake hands and agree that they have a deal, they must then sign a contract. The buyer will give his or her attorney’s name to the seller and the two attorneys will begin to discuss the terms of the contract. It is a good idea to have an attorney in mind before you select an apartment so that you will not waste time interviewing one. Often, your broker will be a good source of referrals. When the buyer calls his or her attorney, the general terms will have been worked out already, such as price, approximate closing date and what personal property is included (e.g., curtains, lights, fixtures).

The attorneys then discuss various contract provisions such as representations that any renovation work was done with board approval and filed with the buildings department. Occasionally, tempers flair even at this early stage when the parties discuss the closing date. The buyer will want it to occur quickly after he or she gets a mortgage and the seller may want a time cushion because renovations on their new home will take a while. Usually the closing is "on or about" a date. This allows some leeway if either party needs more time. Occasionally, there is an exact date with "time is of the essence." That means that it must close on that date. The contracts are usually exchanged by mail or hand delivery. There is not a big sit-down signing.

During this period, which only lasts a few days or less, the buyer’s attorney also conducts "due diligence." This is a review of the board’s minutes and resolutions, the offering plan and the financials. The attorney is looking to see if the building is likely to have an assessment or maintenance increase because of capital improvements.

The Board Package

Technically, the board package must be submitted within ten days after contract signing. The brokers usually take the lead in assisting the buyer complete it. The package includes complete financials, tax returns and letters of reference. Recently, a couple from a midwestern state signed a contract to buy an apartment for their daughter. When they submitted the board package, the financials showed a shockingly low income. While this couple may have "other income" besides what their tax returns show, that was not apparent to the board and the application was denied. If there are no brokers, the buyer will prepare the package with the assistance of his or her attorney.

Mortgage Application

Some buyers do their own research and know which lender they will apply to for a loan. Others may go to a mortgage broker who helps them locate the bank with the best rates.

If you do not regularly maintain records of your net worth, consider getting this in order well before you find an apartment. It can take a long time to put together all the information and back-up materials. Obtaining a mortgage commitment usually takes about 45 days after contract signing. It may take a lot less time if people are pre-approved.

If a bank is involved, they will bill the buyer and order a lien search and title search on the apartment. Because a co-op sale only involves a stock transfer, there is no title search. However, a search is done of any liens or judgments against the parties. Many will be surprised to find that they have to pay old parking tickets in order to buy their apartment!

Board Approval

Within weeks (sometimes months), after the board package has been submitted, the board will interview the buyer. This is a critical point in the process, because even if the buyer has a mortgage commitment, the deal is off if the board turns him down. The board usually gives its decision quickly once they meet with the prospective buyer. The problem that could surface is that some boards are hard to round up, especially if it is the summer or near holidays. Once they have this interview though, the board will give its decision that evening or the next day.

The Closing

In most deals, once the board approves the buyer, the parties try to quickly schedule a closing. Many schedules need to be consulted: the sellers and their attorney, the buyers and their attorney, the buyer’s bank’s attorney, the building’s management company, and the attorney for any banks whose mortgages will be paid off.

A closing should take only one to one-and-a-half hours. It takes a while to sign, photocopy, and distribute documents. Unfortunately, closings may take up to two or more hours more than they should. I have been to closings where one of the parties is more than an hour late. Needless to say, not much can happen without a party’s signature. Generally speaking, all the documents should be ready and it is just a matter of simple signing.

Within 24 hours before the closing, the buyers should do a final inspection. Keep in mind that the the final inspection can lead to some issues. I recall a closing where the buyer found that a large, heavy metal cabinet had not been removed from the apartment. The seller claimed the buyer wanted it left in place. The buyer was so angered that he said he was going to walk out. About to exchange blows, the seller and buyer were placed in separate rooms. After much back and forth negotiating, the broker saved the day by agreeing to have it removed. The closing occurred and everyone lived happily ever after.

Being aware of the entire closing process and its possible pitfalls can help your closing go smoothly, and you can live happily ever after in your new home.

Ms. Berger is a real estate and construction attorney of the Law Offices of C. Jaye Berger in Manhattan.

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