The Legal Summer Reading List Part 1: Real Estate
Summer feels so close. School is ending, vacations (much more than last year) are being planned. What are you doing this summer? Whether it’s relaxing on the beach, selling your home or writing a new business plan, this legal summer reading series has something for you to consider. We start off this month with documents pertaining to real estate transactions that you should be familiar with and understand.
Deed and Title Policy
What is it?
-A deed is the document that transfers property ownership from a seller/grantor to a buyer/grantee. It is recorded with the County Clerk or County Register, and is evidence of you owning your property.
-A title policy insures your ownership interest in the property.
Why do I need it?
Since the deed indicates the correct names of the owners of the property, we will need it to prepare the contract of sale accordingly. It also shows how you took title, whether joint tenants with rights of survivorship, tenants-in-common or husband and wife; that information is important for a multitude of reasons, especially if you have a property dispute. Once we go to contract for the sale of a house, the buyer will get a title search done. That search may show issues (like an open mortgage that was the prior owner’s and was obviously paid off.) The title policy is a little harder to find if you don’t have it. The deed should indicate the title company who was involved in your purchase. We can track it down through that title company, if it is still in business. It is very useful in getting a clear title.
What else should I know?
If you inherit a home and don’t have the original paperwork, we can still assist you with this process. If you don’t have a copy of the original deed, we can obtain one from the County Clerk’s office.
Certificate of Occupancy
What is it?
A Certificate of Occupancy (CO) is a document issued by your municipality certifying a building’s compliance with applicable building codes. This also could be known as a certificate of compliance or certificate of existing use depending on the municipality.
Why do I need it?
Before you list your property for sale, we recommend that you check with your municipality (usually the Building Dept.) to obtain copies of the CO if you don’t have the original and determine if there are any open permits. If there is a record of an open permit, this just means that plans were filed, but the permit was never closed out with a final inspection by the Town and a CO was never issued. The buyer of your house will require that any open permits be closed out prior to closing.
What else should I know?
Even if a structure was there when you bought the home (like a deck or shed), you may be responsible for getting them up to code before listing your home.
Receipts for Capital Improvements/Capital Gain Taxes
What is it?
When you make capital improvements (roof, windows, new kitchen, etc) to your property, you increase the property’s “cost basis.” When you sell your property, if you are not exempted from paying capital gains, you may have to pay taxes on the profit from the sale. (i.e., if you are selling a NY property and it is no longer your primary residence and you live elsewhere, New York state wants its capital gains tax at the closing table!)
Why do I need it?
Your accountant will have to determine your “cost basis” in the house to determine how much profit you made. Keeping receipts for those capital improvements helps reduce the profit so you don’t pay as much tax. You may also be able to deduct expenses like legal fees, escrow fees, notary fees, etc. Do your research.
What else should I know?
This is NOT tax advice and you should speak to your accountant, CPA or tax attorney for specific details.
Survey
What is it?
A survey shows the boundary lines of the property and whether there are any encroachments on the property. It will also show the house and any other structures that you have on the property.
Why do I need it?
A survey sometimes costs anywhere from $652 up to $1,000 depending on the size and location of the property. Giving a copy to your purchaser helps speed up the process and helps them reduce their closing costs. If you don’t have one, the purchaser will have to get their own and it could delay the closing for several weeks while a surveyor goes out and creates a new one. A survey is going to show you what exactly is on your property. If you can locate the one that you received when you purchased the property, that should be more than sufficient. Furthermore, having one prior to putting your house up for sale can help you spot any issues that might be raised during the purchase. Let’s say you find out your neighbor’s fence is actually more than a few inches on your property. If it’s more than 12 in., the title company may raise what is known as an “out of possession” and they may not insure that section of land. Knowing this before you put up your property allows you the ability to get a boundary line agreement or affidavit from your next-door neighbor saying that they are not making any claim for your property.
What else should I know?
There are different types of surveys, so find out what ones you need to complete to ensure a smooth selling process.
Satisfactions of Past Mortgages
What is it?
Often you pay off your mortgage, or refinance, and the lender must record a satisfaction of that mortgage with the County Clerk. Sometimes however, the purchaser’s title report will reveal that the satisfaction was not properly recorded. They should have sent you a copy of it.
Why do I need it?
When you go to sell your property, all liens and mortgages must be properly satisfied with the County Clerk. We recommend that you run a search with the County Clerk to see if there are any outstanding mortgage liens on your property. Most counties have a website you can check. If the County Clerk’s records show that there is an open mortgage that you have paid off, or perhaps the prior owner’s mortgage is still showing as open, it can take some time to resolve it and get a duplicate satisfaction if there is an open mortgage. It is always helpful if you have kept the paperwork from when you refinanced, showing that the prior mortgage was paid off.
What else should I know?
If the open mortgage belongs to the prior owner, generally a policy of title insurance goes a long way to clearing that open mortgage. If you can’t find the title policy, there are still ways of clearing the issue. If the open mortgage was one that you paid off during a refinance, the title company may ask for a copy of the HUD (bank closing statement) or checks showing the payment to the lender. Sometimes the mortgage may be so old that it is considered an “ancient mortgage” (basically the mortgage has expired by its own terms and the statute of limitations has passed for the lender to collect on it), and with the proper affidavits signed at closing, the title company can omit it.
Offering Plan, Bylaws and Financials for Condo or Co-Op
What is it?
The Offering Plan is a book outlining information on floor plans, pricing, bylaws of the building, board finances and operations, down payments, closings, taxes, repairs, etc. The financials are issued every year, and show the financial stability of the condominium or cooperative apartment complex. The bylaws govern how the community is run. If you are buying new construction, the Sponsor or Builder will give you a copy and it shows everything pertinent to the community. This is a document that is actually filed with the New York State Attorney General’s office and grants the authority of the condominium or cooperative Apartments to exist.
Why do I need it?
The offering plan, bylaws, and financials generally include all the pertinent information about the community. You should review them to make sure this is where you want to live. If you are selling, you will need to provide these to your purchaser.
What else should I know?
If you are buying in an older community the offering plan isn’t as necessary as if you were buying new construction. The financials and the bylaws are the most important.
I hope the above information gives you a better understanding of real estate documents. Next month, we are going to dig into documents you need for your business, so stay tuned.
