Marc Jacob

In a residential home purchase, sometimes a buyer is unable to obtain a bank loan for the full amount needed. In these cases, the buyer may ask the seller to act as a bank, lending money for a portion of the purchase price.

If another lender (a bank) is involved, that lender may limit how much the seller can loan. The seller’s mortgage lien will also be secondary to the bank’s mortgage lien. If no other lender is involved, the seller is essentially acting as the bank for the entire transaction.  

Seller financing often occurs in “For Sale By Owner” and “Rent-to-Own” situations, or if the buyer and seller are family members. In these situations, some degree of trust already exists between the parties or the seller is highly motivated to sell but cannot find a buyer who qualifies for conventional financing.

Regardless of how the parties came to structure the transaction, it is important that proper documents be used and that those documents be properly tailored to the specific situation.

 For example, the parties will want an addendum to the sale contract indicating the basic terms of financing. They will also want proper mortgage documents to be prepared for signature at closing. In Missouri, those documents include a Promissory Note and a Deed of Trust.

A Promissory Note is a document that serves as evidence that a debt exists between the buyer and the seller for a certain amount of money and on certain terms.

A Deed of Trust, referred to as a “security instrument,” is a 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.

If you are a seller considering financing the sale your property, or a buyer seeking seller-financing, it is important to seek out proper legal advice prior to entering such a transaction. If you would like to discuss your situation with us, please call us at (314) 862.2237 or email us at mjacob@marcjacobesq.com

 

Yes. You may cross out language in a standard home sale agreement. The parties to the contract (the Buyer and Seller) are free to delete or add any language they wish into a standard home sale contract.

Real estate brokers and agents, however, are often prohibited by law from making such changes themselves. If they do, they risk losing the legal protection of their local trade association (e.g., the local Realtors^® Association) and may violate prohibitions against practicing law without a license. The Buyers and Sellers, however, are not subject to such restrictions.

In order to determine which parts should be deleted or added for your protection, you might want to consult a Real Estate Attorney who is experienced in residential transactions in your locality.

It is important to remember that someone, usually a lawyer, representing some person or entity, drafted the standard contract you are using. That lawyer likely included language in the contract to make sure their client was protected. That does not mean they were trying to protect you.

It is only by making such modifications, when appropriate, that the parties are able to tailor the contract for their specific deal.

In the law we have a concept that all real property (land, buildings, etc.) is considered unique. If that is true, it should follow that every contract for the sale or purchase of real property should also be unique.

Standard forms are often a good starting point, but merely signing something that somebody else’s attorney prepared for them does not provide you the protection you should demand or receive.

If you are purchasing or selling real property and would like to consult an attorney, please contact us at 314.862.2237 or email us through this site.

If you are purchasing a home, and need financing (a loan/mortgage), there will be a deadline in the real estate contract by which you need to secure that loan. This deadline is called the Loan Contingency Deadline or the Loan Commitment Deadline.

Many homebuyers are unaware of this deadline in their contract, or do not understand what it means, letting it pass without getting the proper approval from the lender. Letting this deadline pass can have significant financial consequences.

Before we get into what happens, let’s go over a few necessary definitions to better understand the process of getting a loan:

• Pre-qualification: Pre-qualification is based on your overall financial picture (income, debts and assets) and merely reflects the loan amount for which you might be approved. Being pre-qualified does not mean that you are approved for that loan. In fact, you could pre-qualify, but ultimately not be approved for the loan.

• Pre-approval: After doing an extensive check on your financial status and credit score, the lender will tell you the loan amount for which you are pre-approved. This is the amount the bank will lend to you, with some conditions. Note, the bank has not yet agreed to give you the loan. Pre-approval is subject to an internal bank process called “underwriting.”

• Loan Commitment or Loan Approval: If you are pre-approved, or in some cases after underwriting is completed, the lender will issue a loan commitment or loan approval letter. This letter states how much the bank is willing to lend to you and on what terms. This “commitment” is typically subject to a number of conditions that you must meet prior to receiving the loan. If the conditions are not met, the lender is not obligated to provide the loan.

For example, the lender may agree to give you a loan, but only if the property appraises for at least the purchase price. The lender may also require certain documentation prior to guaranteeing the loan. Thus, a loan commitment is not much of a commitment at all, depending on what it is subject to.

• Final Commitment: Lending banks do not typically provide this letter unless you ask for it. It states that the lender is providing you a loan and is only subject to you signing the documents at closing (assuming you have no significant, downwards financial change between the date of the letter and closing).

Unfortunately, we have seen a number of clients who thought they had a loan “approved” or “committed” by their bank, only to find out after the loan contingency deadline had passed and the bank  decided not to make the loan.

This puts the Buyer in a very difficult position – they do not have the necessary financing, and are not able to get terminate the contract. They cannot purchase the property, must breach the contract and lose their earnest money. The breach may also subject the Buyer to damages and the Seller’s attorney’s fees if the Seller opts to forgo the earnest money as a settlement.

When one hires an attorney, their legal counsel can encourage lenders to get their appraisals done, finish their underwriting and issue commitments or approvals early, subject only to those documents that need to be signed at closing.

Staying on top of deadlines, advising clients of the risks involved in proceeding without a final commitment from the lender, and helping clients make informed decisions whether to terminate without liability, if possible and desirable, is an important role only an attorney can play in a home purchase transaction.

If you are purchasing a home, and need assistance understanding your loan documents, please call our office at 314.862.2237 or contact us through this site.

 

No. Many people hire an attorney to represent them in the purchase or sale of a home. In fact, this practice is quite common throughout the United States. Our office regularly represents clients buying or selling a residential property.

A number of states even mandate that an attorney be hired for at least part of the process. Even if you live in a state, like Missouri, where attorneys are not required by law, you certainly have the right to hire one to protect yourself, and to do so is in your best interst.

It is against the law in Missouri for a real estate agent or broker to dissuade you from hiring an attorney. (See Missouri Secretary of State: Code of State Regulations – 20 C.S.R. 2250-8.110(3)). Further, the standard  residential contract your agent or broker helps you complete says 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 certainly be a big red flag if your agent does, or says anything, to indicate that you do not need an attorney.

Because it is not customary in St. Louis to hire one’s own attorney, many agents have either not had experience working with an attorney or had a negative experience. Sometimes a lawyer is brought in only when things start to go sour between the buyer and seller. At that point, it is a litigator who is hired. When the deal falls apart despite the agent’s hard work, they lose their commission, and blame the lawyer.

However, the situation is much different when a transactional lawyer is brought in at the beginning of deal. Agents who have experienced this situation better understand the added value and protection a lawyer brings them and their clients. These lawyers facilitate getting the deal done from contract to closing, and in the client’s best interest.

In 2011, the New York Times published an article on the desirability of hiring a lawyer, and the pitfalls associated with not doing so: The Case for Hiring a Lawyer .

Even the National Association of Realtors® agrees that hiring a lawyer for home sales or purchases is often in the client’s best interest.  See their response here. As does Nolo.

If you would like to hire a lawyer for the sale or purchase of a home, please contact our office at 314.862.2237

No, the Title Company’s lawyer only represents the Title Company.  Similarly, the Lending Bank’s lawyer only represents the Bank.  The only lawyer who represents you and works to solely protect your interests is the lawyer you hire.

In Missouri, title companies are permitted to provide certain legal forms, such a form deed or marital waiver.  Their attorneys, however, represent neither the buyer nor seller; title company lawyers only represent the Title Company.

While your interests and the Title Company’s interests might often be aligned, they are not always the same.  And at times, your interests may conflict with the Title Company’s interests. 

For example, a homebuyer may be presented with documents at closing, such as an indemnity agreement, that protects the Title Company against the homebuyer. An indemnity agreement states that the homebuyer will have to pay the Title Company under certain circumstances if later there is a claim against the Title Company related to the home purchase.

In addition to making sure your interests are protected, your attorney can negotiate with the Title Company’s attorney over certain exceptions to the Title Insurance Policy.

For example, if the neighboring parcel is wrongly encroaching on your property through a misplaced fence, the Title Company may at first refuse to insure over this part of your property. This exception will limit your future ability to move the fence or build on that part of your property.

Your attorney will try to work with the Title Company’s attorney to resolve the situation in your favor.   Without an attorney on your side, the Title Company would likely not deal with this issue and your property rights could be negatively impacted.

If you would like to consult with an attorney regarding title issues, please contact our office at 314.862.2237 or email us through this website.

When a property is listed on a multiple listing service (MLS), there may be six individuals involved:

• The Seller
• The Listing Broker (Represents Seller)
• The Listing Agent (Agent who works for the Listing Broker)
• The Buyer
• The Selling Broker (Broker who represents Buyer)
• The Buyer’s Agent (Agent who works for the Selling (Buyer’s) Broker)

When the seller successfully closes on the sale, the Listing Broker is entitled to the commission specified in the listing agreement. In the St. Louis area, this is typically around 6% of purchase price. The seller is generally responsible for paying this at closing.

The Listing Broker shares the commission with the Selling Broker, and each Broker pays their own agents.

For example, assume a home purchase price of $500,000. The 6% commission would be $30,000. The Listing Broker distributes half, or $15,000, to the Selling Broker. Then the Listing Broker pays their Listing Agent. Percentages vary depending on the brokerage, but for simplicity sake, let’s say they split it. The Listing Broker takes $7,500 and pays the Listing Agent $7,500.

The Selling Broker also pays their agent. Again for simplicity, let’s assume they split the $15,000, each taking $7,500.

At the end of the day, on a $500,000 home purchase, the typical compensation breakdown would look like:

• Listing Broker: $7,500
• Listing Agent: $7,500
• Selling Broker: $7,500
• Selling Agent: $7,500

Who pays the commission? All states have different practices, but in Missouri, commissions for both sellers and buyers agents/brokers are typically the responsibility of the Seller. The Buyer pays nothing to their agent/broker.

This sets up a bizarre dynamic for the Buyer’s agents/brokers, who are actually getting paid by the other side (the Seller). If you are on the buying side, beware of this potential conflict between you and your agent/broker. You are not the one paying their bill.

If you have questions about your situation, whether you are buying or selling a property, please feel free to contact our office through this website or at 314.862.2237

No, you should not ask your Real Estate Agent or Broker legal questions. Real Estate Agents and Brokers are not attorneys and are, therefore, prohibited by law from practicing law or dispensing legal advice.

Missouri Law states that “no person shall engage in the practice of law or do law business, as defined in section 484.010, or both, unless he shall have been duly licensed therefor and while his license therefor is in full force and effect…” Any person or entity that violates this prohibition is guilty of a misdemeanor and subject to a fine and treble [triple] damages. RSMo. § 484.020.

In plain English, this means that only licensed attorneys can practice law or advise on legal matters. Any non-attorney doing so will be breaking the law and subject to prosecution.

Asking legal questions to your real estate agent or broker is not only prohibited by law, it is a bad idea. First, it puts your agent in an uncomfortable position. Although they are licensed to engage in real estate agency or brokerage, they are not trained lawyers, and therefore not qualified to dispense legal advice. Not wanting to disappoint you or their broker, your agent may feel compelled to answer you in an area their training and licensing does not support.

If you ask your agent or broker a legal question, but their answer does not accurately reflect the law, you may have little recourse if you suffer damages from relying upon it. You may not be able to successfully sue your agent or broker for engaging in the unauthorized law business, because you 1) knew they were not a trained lawyer; and 2) likely signed a brokerage agreement indicating that the agent/broker was not engaged in the practice of law. Even when you have an excellent claim against an agent or broker, lawsuits are often very difficult or expensive to pursue.

Your agent/broker and lawyer have different, but complementary roles. Your agent helps you locate properties (if you’re a buyer), or locate buyers (if you’re a seller). State statute also permits agents and brokers to fill in legal forms that have been approved by legal counsel, and to use their own experience to aid you in  negotiations.

Your lawyer, on the other hand, advises you on the contract terms, reviews the title work and survey, reviews closing documents from the lender and title company, and negotiates the detailed terms of the agreement, even altering pre-printed forms and clauses, to ensure the deal makes sense for you. Lawyers and Agents are both on your team, but they have different responsibilities.

If you have a legal question regarding a home purchase or sale, please feel free to call our office at 314.862.2237.

Yes – It is highly advisable to have a lawyer review your title work, because a lawyer can review the title insurance commitment from the title company and negotiate with the company to ensure that the policy sufficiently protects your interests.

Title work first begins with a “Title Search” to determine who has title (or ownership) of the property. Typically a title company examines all of the deeds, public records and other documents that pertain to the particular property. The title company is trying to locate any potential defects in the chain of title that would raise a question as to who actually owns the property.

Defects might include: 1) a significant variation in the legal description of the land on a prior deed; 2) a deed that was improperly executed; or, 3) a deed that was executed by someone who lacked capacity to convey the property. The title search may also determine if any liens exist on the title and if the owners are subject to any judgments in the county where the real estate is located.

Once the title search is complete, a title insurer (usually a national insurance company and not necessarily the local title company you are familiar with) will issue the Title Insurance Policy. Title insurance is an insurance contract that protects the policyholder from losses caused by both on-record and off-record defects in existence on a specific date. There are two types of policies: 1) The Owner’s Title Insurance Policy, which protects the owner from losses due to title defects; and 2); The Lender’s Title Insurance Policy, which insures that the lender’s mortgage has a certain priority.

The title insurance policy insures the property subject to exceptions. These exceptions are concerns that the title company has regarding something on the chain of title, or off the record.

A lawyer can work with the Title Company to delete these exceptions in several ways. The lawyer can bring forth evidence to show that a defect has been cleared up, or can limit an exception, by showing the defect only effects a limited part of the property. Your attorney can also work with the surveyor to get a more accurate picture of encroachments on the property and use that information to negotiate coverage with the title company.

Your lawyer can also work with the title insurance company to obtain endorsements. Endorsements are agreements by the insurer to bear increased risk for certain events. For example, an endorsement may overturn an exception stated elsewhere in the policy or may modify a condition in the policy. Some typical endorsements deal with zoning, surveys, condominiums and subdivisions, or those that extend coverage to other parties, such as LLCs or other limited liability entities to whom you wish to transfer title.

If you are in the home buying process, and have questions about title work, please contact us at 314.862.2237

 

Yes –Any real estate contract that is referred to as “standard” was drafted by somebody and for somebody. In most cases, the contract was purchased online or at an office supply store, or it was supplied by a member of the Realtors® Association, whose legal counsel drafted if for its members’ use. All real estate contracts can be negotiated, including a contract provided to you by a real estate agent/broker. In fact, contracts for the purchase or sale of a residential property are often negotiated. Perhaps more importantly, the failure to fully negotiate such contracts could effectively waive your rights to later complain about or sue over the contract terms.

That said, only you or your lawyer can make changes to the contract. A real estate agent or broker is not permitted to do so in Missouri.

Missouri law only permits real estate agents and brokers to fill in the blank spaces for the parties, write on the blank lines at your direction, and fill in property location and other necessary terms. Doing more than this may constitute the unauthorized law practice in violation of Missouri law. Agents and brokers are therefore unable to cross out any of the contract language, and substitute it for something else. They are also unable to substitute contracts in the event the “standard” forms are not appropriate for the particular deal, unless such forms are pre-approved by their own legal counsel. But you, the client, can do that with the help of your attorney.

Many people buying or selling a home will therefore hire a lawyer to help them review their contract, negotiate its terms and make changes that are more favorable to their position. Real estate contracts can be complicated, and it is highly advisable to hire a lawyer who is experienced in this area of the law.

Our firm has helped numerous clients negotiate many so-called “standard contracts,” or “standard terms,” including but not limited to: the type of inspections allowed, who pays for them; dates for deadlines, and what happens in the event closing is delayed.

If you are either purchasing or selling property, or are an agent or broker assisting someone, and would like to discuss obtaining or making changes to a contract, please feel free to call our office at 314.862.2237.