- A few key issues can delay both residential and commercial sales. Some of the main sources of delays are title issues, judgement liens, and defective satisfaction of past mortgages. These issues must be resolved before a deal can proceed. Once all such issues are resolved, the property is said to have “clear title”.
- Commercial properties have two common, unique sources of delays: environmental requirements and tenant issues (if there are any current leases held within the property).
- Form contracts should not be used in these deals, as they are generic templates. They are therefore not sufficiently customizable and are unlikely to suit a given person or property’s needs.
- The best thing you can do to ensure that a closing goes smoothly is to hire an attorney who prepares in advance.
One of the main causes of potentially derailing delays in residential and commercial sales are title issues.
One the things we’re finding most with real estate presently are a lot of out-of-possessions. The flow goes with mortgage companies. They come up with different reasons why they will or will not lend to various people to make various property purchases. Most mortgage companies never cared about possessions before, but now they’re very concerned about them.
Therefore, you have to make sure that surveys are done to prevent out-of-possessions and title issues. There are some circumstances in which a new survey might not be necessary. For example, if you had a study done relatively recently and defenses haven’t been moved since then. In some cases, a relevant factor is whether you know and are friendly with your neighbor. Are we going to be able to get them to agree a boundary agreement of some kind? Otherwise, any out-of-possession is something that causes delays.
The other common delays in commercial and real estate property transactions have to do with judgment liens. Obviously, you find judgment liens on properties all the time. People sometimes don’t even know they have a judgment against them until a title search is run, and we say, “Look, you have a judgment against you.”
In many cases, people think the judgements we find were cancelled 10 years ago, but they weren’t, so now there’s a judgement for a considerable amount of money to deal with. The same is true of tax liens.
Mortgages can also become an issue in this way. We had one case very recently where a person had a mortgage and they paid off that mortgage—or so they thought. When they went to get a new mortgage for their upcoming property purchase, we ran a search and found a defective satisfaction filed for the previous mortgage. Unfortunately, that mortgage was with an old bank that no longer exists. So now we have to go through all the documents and information trails, trying to find who it was assigned to from the bank department to get a proper satisfaction filed, which is the only way to dispose of the exception to their title policy, which is holding up the entire process.
There are also issues unique to commercial transactions that could cause delays. These issues include:
- Environmental Requirements: As discussed previously, environmental testing and studies are required when dealing with most commercial transactions. The extent and length of the required studies depend on the type of building and should be considered beforehand. However, there may be unexpected factors with a particular building that could require more extensive, lengthier testing unexpectedly. Doing research about a property as extensively and as early-on as possible will help you get a more accurate read on the time frame testing might span, and therefore anticipate and plan for any delays.
- Tenant Issues: When you are buying a property, one major thing to consider is the status of the leases in that property. How many leases, if any, are there in the building? Do any of those tenants have a right of first refusal in their lease (i.e., they must be offered the property before anyone else is allowed to buy it)?
To properly understand the tenant situation in each building, you have to actually go through every lease that the building might have. In some cases, that won’t be too bad, and will be a manageable 3-5 leases. In other cases, you could have 50 leases that you have to look through. This is time-consuming and could delay the process significantly.
Sometimes you can’t afford that sort of delay. For example, if a 1031 exchange is involved, it comes with a time limit. You must buy the property within 120 days, which can be kind of tight sometimes with a commercial transaction.
What Is Clear Title And Why Does It Matter?
Clear title means that a person owns the property free and clear of any liens, judgments, and violations. It’s important because no one wants to buy your property unless they know that when they have it, they can sell it. No bank is going to loan against your property or give you a mortgage against the property unless they know that the title is clear, that there are no liens, no judgments, and no violations against the property. This is why it’s so important to get a clear title.
What Is A Bad Form Contract?
A bad form contract is just that: it’s a form, a template. It isn’t written with you or the property in mind, and therefore it often can’t cover your specific needs, or the needs of the person selling their property.
In today’s day and age, we’re doing things very differently. Appraisals are not coming in for the home values, but people are still buying the homes. Therefore, we have to have appraisal waivers in our contracts. We try to maximize or minimize each person’s liabilities when it comes to those appraisal waivers and how they are handled.
What Happens At The Closing For A Residential Or Commercial Property Sale? What Can My Real Estate Attorney Do To Make The Process Go Smoothly?
I hope to think that my firm makes closings for residential and commercial property sales go smoothly. I would say the key to our success there is all about preparation. Whenever we deal with other firms, we try our best to make sure that everything is right and in order in advance. We double check that everything down to the penny is worked out prior to the closing.
If all that work is done in advance, closings are a breeze. We can simply name the time and place, tell everyone to bring two forms of ID with them, make sure to bring a pen, and then you just need one check payable to X for X dollars.
We figure out everything else that has to do with the lender writing out all the other checks beforehand, such that it’s already done for the client at closing. Provided that the other side is cooperative, everything can go smoothly from there.
Unfortunately, that’s where we sometimes run into problems. Some people will use attorneys that are general practitioners and don’t really specialize in real estate, so they don’t really know what to do to prepare properly. We try our best to work with the other attorney in these cases to help them get prepared beforehand as well. Some attorneys are more receptive than others to our help.
I recently dealt with a case where the other party hired an attorney from California. Although the attorney was admitted to the bar in New York, he hadn’t practiced in New York in some time. Ultimately, the order was above his head, and he was having difficulty sufficiently handling the case.
To facilitate a smooth closing for our client, we offered—even though we were the buyer—to prepare the attorney’s sales documents, the transfer documents, and so forth. Again, we did this to make sure that their right and their transaction will go more smoothly at closing.
All we can really do is try our best. I won’t always know if, for example, the other attorney isn’t experienced at real estate—although most times we know right from the get-go, as soon as they make or don’t make proper comments on your contract of sale. Sometimes I might even know when I receive the contract. If I see that they’re using the form template and they have a one-page writer at the end, I kind of know that they really don’t specialize in this sort of law, and we try to do what we can to make everyone’s life better.
One of the reasons I went into real estate was because it was one of the few times that I could say everyone’s usually happy at the end of a case. This is dissimilar to litigation, where you have a winner and the loser. Here, at the end of the day, you should have two winners: somebody who is happy they sold their home or their business or their commercial building, and someone who’s happy that they bought that same item. So we try to do what we can to make sure that that does happen.