Many clients worry about upsetting their agent if they hire an attorney to assist in the home buying/selling process. A real estate agent should not get upset that you have hired an attorney if they really care about what is best for you.

A Real Estate Agent should not discourage you from hiring a lawyer

A Real Estate Agent should not discourage you from hiring a lawyer

It is against the law in Missouri for a real estate agent or broker to dissuade you from hiring an attorney. (See 20 C.S.R. 2250 -8.110(3)). Furthermore, the standard residential contract your agent helps you fill out states on the first page “If you do not understand everything in this contract, then you should consult an attorney,” or something similar depending upon which version they use. It should be a big red flag if your agent does or says anything to indicate that you do not need an lawyer.

We have had a number of agents express some surprise when our clients bring us into a residential property deal to help explain things to them or make certain modifications to the contract documents. We think the surprise is rooted in at least two things:

  1. First, the agent may not have had personal experience working with a transactional attorney on a real estate deal in the past, as is common in may other cities and states.
  1. Second, agents have a very reasonable concern that if something goes wrong, the attorney will “kill the deal,” and then the agent will not collect a commission.

On the other hand, agents who have experienced working with a transactional lawyer in the past understand the added value and protection a lawyer brings them and their clients. Law firms like ours help facilitate getting the deal done from contract to closing without compromising on this protection for the client.

In 2011, the New York Times printed an article on the desirability of hiring a lawyer, and the pitfalls associated with not doing so. We think it is worth reading: The Case for Hiring a Lawyer

Even the National Association of Realtors® believes that hiring a lawyer for home sales or purchases is often in the client’s best interest.  Read: Do I really need a real estate attorney?  So does Nolo. Read: Real Estate Attorneys for Home Purchases.

If you would like to hire a lawyer for the sale or purchase of a home, please contact our office at 314.862.2237 or email us at mjacob@jacob-law.com

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Most residential sales contracts include a provision for real property tax prorations at closing. This means that a certain portion of the annual real estate taxes will be Seller’s responsibility and the rest will be the Buyer’s responsibility.

How to calculate real estate taxes

How to calculate real estate taxes

If you are closing at a title company in Missouri that provides title insurance, generally that company will provide a HUD-1 “Settlement Statement.” This is the closing statement that lets the parties know what they are being charged, how much money they need to bring to closing (usually the Buyer), and how much money they can expect to take home from the closing (usually the Seller). For more information on closing documents, read this post.

Many contracts we see state that the Seller is responsible for real estate taxes up to, and including, the date of closing. For example, if the overall real estate taxes are $3,000 for the home and the closing is to take place on June 30, then $1,500 is the responsibility of Seller and $1,500 is the responsibility of the Buyer.

Since most closings do not take place on June 30, the calculation should be done carefully and may need to take into account the following issues:

  • Does the contract indicate that proration is adjusted to assume all months are 30 days in length?
  • Is the proration based on the current year’s taxes or the previous year’s taxes? Be aware that depending on the terms of the contract, if proration is based upon the previous year’s taxes, the Buyer may or may not have any recourse against the Seller if the current year’s taxes end up being more than the previous year’s taxes.

If you have questions about closing, or if you are closing without title insurance, please contact us at 314.862.2237 or at mjacob@jacob-law.com

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Strictly speaking, Missouri law does not require having a lawyer at your home closing, but it is highly recommended.

Why a Lawyer is helpful at closing

Why a Lawyer is helpful at closing

There are a number of reasons why the parties would want to have their own attorneys at closing. Among them are:

  • To verify the deed information is correct so that title will pass properly;
    • NOTE TO READER: We recently attended a residential closing where one of the parties was listed incorrectly. We do not believe that title would have passed properly had we not identified the mistake.
  • To explain and review the HUD-1 closing statement, and to work with the title company and lender if there are any mistakes or discrepancies on the statement;
  • To review title closing documents that unnecessarily impose liability on the Buyers, and request the title company modify or remove them from the closing file.
  • To review marked up title commitment, which determines the terms of the title insurance policy (for Buyers);
  • To review lender documents for any red flag issues of concern (for Buyers);
  • To resolve differences between the parties, or other oversights, which may require signing additional documents or amendments at closing.
  • For more information on documents that are signed at closing, read this previous post.

The price for hiring an attorney just for closing is relatively inexpensive in the context of the home sale/purchase. As of 2015, our office attends closings in person for a flat fee of $499 anywhere in St. Louis County or St. Louis City, or by phone/video conferencing elsewhere in Missouri.

If you would like to hire us to attend your closing, or have questions about closing, please contact us at 314.862.2237 or at mjacob@jacob-law.com

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What is Earnest Money and Do I Need It?

Earnest money is a certain amount of funds given by the Buyers to either the Sellers or an Escrow Agent, who holds the funds in trust. If Buyers close on the property, these funds are applied to the purchase price at closing.

What is Earnest Money?

What is Earnest Money?

There are a number of reasons why Buyers submit earnest money along with, or very shortly after, signing the contract for the purchase of real estate. Among them are:

  • In Missouri, a contract for the sale of real property, in addition to being signed by all of the parties and certain other requirements, must also be supported by “consideration.” Consideration must be something of value in order to bind the parties to the contract. Funds changing hands in the form of earnest money is the most common method of consideration used.
  • If there is a breach of contract, the earnest money can become a matter of negotiation to allow the parties to part ways. For example, if Buyers improperly terminate the contract, many contracts allow Sellers to keep the earnest money as Sellers’ remedy for Buyers’ breach. Sometimes this is the exclusive remedy for Sellers, and sometimes this is in addition to the right to sue for damages or other rights. (For more information on Seller remedies, read this post).
  • Earnest money shows Sellers that Buyers are serious about making this purchase and are willing to put cash up to demonstrate their seriousness. In a situation where there are multiple potential Buyers, each vying for the right to purchase the property, one criterion Sellers may consider in determining which contract to sign is the amount of earnest money submitted. That way if those Buyers breach, Sellers have an expectation that they are likely to at least get that amount of the earnest money deposit for their troubles and for taking the property off the market.

It is common in Missouri for the title company closing on behalf of Buyers to hold the earnest money deposit. For the title company to release the earnest money prior to closing or in a failed deal, both Buyers and Sellers generally need to agree in writing to this. Otherwise the title company may deposit the money with the local county court to protect itself from liability.

If you have questions about earnest money, or about purchasing or selling a home, please contact us at 314.862.2337 or at mjacob@jacob-law.com

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Every county or municipality will have different rules for determining what is necessary to allow the new homeowner to get an occupancy permit. Some localities require no inspections whatsoever, while others require a host of government inspections.

Some of the government inspections that may be needed include:

  • Electrical systems;
  • HVAC systems;
  • Plumbing systems or fixtures;
  • Aesthetics of the home, such as external paint, shingle and driveway condition;
  • Fire safety – in some localities this is a separate inspection that is conducted by the local fire district;
  • General safety/code compliance, such as rails for stairwells.

The local government office that issues occupancy permits can provide information on what inspections are necessary, what they cost, and how to schedule them.

Inspections Needed for an Occupancy Permit

Inspections Needed for an Occupancy Permit

If you are working with a real estate agent, in our experience they can also be very helpful in either scheduling these government inspections or making sure the inspectors have access to the home.

Once the inspections have been completed, any issues that require repair or replacement should be discussed with your attorney immediately so that the Inspection Notice can be properly worded. (For more information on Inspection Notices, please read this previous post.)

It should be noted that even though the Buyer may need passing local inspection reports to get an occupancy permit, in many places, it is the responsibility of the Seller to order, pay for and facilitate these inspections.

If you have questions about government inspections, or buying a home, please contact us at 314.862.2337 or at mjacob@jacob-law.com

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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.

What happens If I don't get a loan?

What happens If I don’t get a loan?

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@jacob-law.com

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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@jacob-law.com

 

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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.

Lots of Documents to Sign

Closing Documents to Sign

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@jacob-law.com

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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.

file foldersWhen 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@jacob-law.com

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How Do I Find a Private Home Inspector?

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. toolbox

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@jacob-law.com

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