Questions & Answers

For Buyers who need financing to purchase a home,  the home purchase contract may give them some time to get a “Loan Commitment” or “Loan Approval.”  The Buyer must get either of these before the Loan Contingency Deadline.

In addition to these terms, there are other terms that often get thrown into the mix, and that are helpful to understand. There is some variation across lenders, and the definitions below may not fit all lenders.

Pre-qualification means that the lender evaluated the potential borrower’s financial picture based only on information the borrower provided, and indicated the mortgage amount for which the borrower could possibly qualify. The lender has not reviewed the potential borrower’s credit, or any other supporting documentation.

Pre-approval is a different term and is somewhat more involved. To get pre-approval, the lender verified the potential borrower’s financial background, checked their credit, and reviewed the mortgage application and other supporting documentation. If pre-approved, the lender can provide the potential interest rate that the borrower would qualify for and may also allow them to pre-lock a rate.

 Although a borrower may get a “Pre-qualification” or a “Pre-approval,” it is the Loan Approval or Commitment that are really the important benchmarks when it comes to the loan contingency deadline.

A borrower will therefore want to discuss with their lender what is required to get documentation that assures that the lender will provide financing.

A lender may not want to discuss appraisals or final underwriting until it gets closer to closing. This can be an area of contention between the borrower and the lender. If the lender has not finished underwriting, but has issued the approval or commitment, the borrower may be on the hook to purchase the house even when the bank is not yet fully committed to funding.

For this reason, we suggest that borrowers discuss the issue with an attorney if their lender is not willing or able to give them a satisfactory commitment or approval.

If you have questions about obtain a loan commitment or approval, please contact us at mjacob@marcjacobesq.com or at 314.862.2237

Many home purchase contracts today will give the Buyer a certain amount of time to get a “Loan Commitment” or “Loan Approval,” if the Buyer seeks financing to purchase a home. The Buyer must get either the Loan Commitment or Approval by the Loan Contingency Deadline.

The terms “Loan Commitment” and “Loan Approval,” are often used to mean the same thing in some standard real estate contracts and even in a number of court cases. One could argue that a loan commitment is stronger than a loan approval, or vice versa, but we have not yet seen any clear distinction in Missouri.

Although the lender may offer you a “Pre-qualification” or a “Pre-approval,” the Loan Approval or Commitment are really the important benchmarks when it comes to the loan contingency deadline.

A borrower will therefore want to discuss with their lender what is required of them to get a document from the lender that assures them the lender will provide financing.

Often lenders do not want to discuss appraisals and final underwriting until it gets closer to closing. This can be an area of contention between the borrower and the lender. If the lender has not finished underwriting, but has issued the approval or commitment, the borrower may be on the hook to purchase the house even when the bank is not yet fully committed to funding.

For more information on what happens if the lender does not commit to funding, read this.

For this reason, we suggest that borrowers discuss the issue with an attorney if their lender is not willing or able to give them a satisfactory commitment or approval, or if they want some help navigating this process.

If you have questions about obtain a loan commitment or approval, please contact us at mjacob@marcjacobesq.com or at 314.862.2237

Anytime you are preparing to enter into a major financial transaction, it is wise to review the underlying contracts and other documents. In a home closing, those documents might include:

• The Sales Contract,
• Amendments to the Contract,
• Inspection Notice,
• Final Walk-through Notice, and
• Any other documents that require either of the parties to provide something at or prior to closing, such as additional funds, certificates or other documentation.

In our experience, some of the things that often get overlooked are:

• Whether Seller is required to provide a home warranty;
• Whether Seller is required to provide lien waivers, due to repairs at Buyer’s request;
• Whether Seller is required to provide a passing gas inspection;
• Whether Seller is required to provide a passing local government or fire district inspection;
• Whether Buyer or Seller needs to provide a Certificate of Trust, if they are acting in a Trustee capacity.

If you have an attorney, he or she will likely review these documents prior to closing. In addition, both you and your attorney should review the HUD-1 Closing statement and other closing documents provided by the title company and lender. Read this post for more information on closing documents.

Properly preparing for closing in our experience leads to a much smoother closing of the transaction.

If you have questions about your documents, please contact us at 314.862.2237 or at mjacob@marcjacobesq.com

A “standard form contract” is really just a contract like any other. It is drafted for the benefit of the client who hired the lawyer to draft the contract. Buyers and Sellers should therefore be very concerned that the terms in the contract were not written for their benefit.

For example, most of standard form residential contracts we see are drafted for a local, private, association of real estate brokers and agents. The lawyer(s) who drafted those contracts did so on behalf of that association to help its members facilitate home sales in the most efficient manner possible. The drafting lawyers may not have been not very interested in giving the Buyer (or Seller) the protections that Buyer (or Seller) would want to have in a fully negotiated agreement.

This leaves Buyers and Sellers in danger. They often think they are protected because a contract is called “standard” and many people use it. But without modifications to that contract based on the specifics of their deal, the protections Buyers and Sellers want are probably not in that “standard” contract.

If you would like our office to review your contract or draft a custom one, please contact us at 314.862.2237 or email at mjacob@marcjacobesq.com

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.

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:

• 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.

• 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@marcjacobesq.com

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.

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@marcjacobesq.com

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

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@marcjacobesq.com

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.

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@marcjacobesq.com

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.

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@marcjacobesq.com