Dear Potential Buyer/Seller:

This is a form letter which addresses many of the issues which should be considered by buyers, sellers, and New Jersey real estate lawyers / attorneys in both purchases and in sales of property in New Jersey. My practice is statewide but focuses on Mercer, Middlesex, and Somerset County real estate transactions. Before we proceed, let me state that my law firm has expertise in numerous other areas of the law in addition to real estate (such as wills, trusts and estates, municipal court, personal injury, litigation, business law, labor law, land use, and family law, as well as other areas). Feel free to contact us if we may be of service to you for any of your legal needs. Let me now address your real estate concerns.

Just a note about the Attorney Review period. The Attorney Review usually lasts three business days from the time that the last party signs the contracts. Either attorney may initiate changes to the contracts within that three day period. Once either attorney sends a letter under the Attorney Review, the Attorney Review does not end until both sides reach agreement. This means that the Attorney Review may extend beyond three days.

Let us now discuss purchases. There are subtle differences between buying "new construction" or a "resale". Regardless of whether your purchase is new construction or a resale, our fee for a standard closing is about $900.00. We use a title company to make disbursements and perform certain post-closing functions. A standard closing takes fewer than six (6) hours of my time for all aspects of the closing - including about four (4) hours for contract review, initial consultation, address of engineering issues, and time for telephone calls and correspondence, title review, document preparation, and submission to your lender, and an additional two (2) hours for travel to the closing, conduct of the closing, and some post closing functions. My legal fee may be increased to reflect use of excessive time (charged at $200 per hour), including travel more than twenty (20) miles from Lawrenceville, preparation of a Use and Occupancy Agreement or Power of Attorney, or closing a second mortgage. We also charge you for photocopying, telephone toll charges, FAX, postage, messenger services, or other out-of-pocket expenses. In addition to our legal fee and disbursements, it is your obligation to pay for other costs such as inspections, homeowners' insurance, title company charges, lender charges, survey fees, recording fees, and other charges. If the closing does not occur, you might not be charged the full $900.00, but you will be charged a legal fee based upon the time we spent on your behalf.

Before we are out of the Attorney Review on your buy, whether it is new construction or a resale, there are a few issues which you must review for yourself and with me. First, if you have a house to sell in order to be able to buy this property, you should discuss this with me immediately, as it may affect whether you should proceed with these contracts. I will assume that this is not an issue unless I hear from you. If this is an issue, I would like you to contact me both by phone and by letter so that the issue is not missed. Second, if the property that you are purchasing involves an Association, it is important that you review the By-Laws and Conditions, Covenants & Restrictions before the end of the Attorney Review to determine whether any limitations on the use of the property prevent you from using the property in the manner intended by you.

If the property which you are purchasing is a "resale" (not new construction), the following additional issues need to be reviewed. Understand that although I am familiar with the contracts, I have no knowledge about the condition of or specific items which exist at the property that you will be buying. Therefore, assuming that the property is a resale, the third issue for you to raise with me before the Attorney Review is completed is whether there is an underground oil tank. If there is, we should discuss necessary testing, insurance, and possible removal of the tank. Fourth, if the property has a finished basement, addition or deck, you should alert me, and you or your realtor should check with the municipality to confirm whether permits and approvals were obtained by the Sellers from the Township. Fifth, remember that the engineering contingency is limited essentially to structural defects. If there is a condition of the property which concerns you that is non-structural, advise me before we are out of the Attorney Review.

If the property which you are purchasing is new construction, you should check the builder's reputation with others who have bought from the builder for 1) how closely the builder delivers on time, 2) how closely the builder delivers what it promised, and 3) how thoroughly the builder completes any post-closing punch lists. The builder will likely perform in the future as it did in the past.

Once we are out of the Attorney Review (and possibly before), if the property is not new construction (you will not perform an engineering inspection for new construction as the Township Building Department will conduct inspections during the progress of the construction), you should make immediate arrangements for your engineering inspections. Please note that most contracts give us only ten (10) days to notify the Sellers' attorney of any engineering or insect issues. You must set the inspection early enough that we will receive the report back in time for us to review it together and for me to send a letter to the other attorney within those 10 days. This can be accomplished if you schedule the inspection immediately, and direct the inspector to FAX the report directly to me. Hopefully you will attend the inspection with the inspector.

There are some other issues which you might want to consider before scheduling the inspection for a resale. If there is a well or septic, the lender will want a well water certification for the well (we may be able to get the Seller to pay for or contribute to this certification) as well as septic results. If there is a septic system, you should consider a full, invasive inspection. If the property has synthetic/artificial stucco, you should hire a certified EIFS inspector. If you are purchasing a property with an underground oil tank (you should either obtain insurance for it or have it removed), the tank should be tested. Lenders generally want the termite report prior to the closing. Please send it to me when you receive it along with any other applicable reports.

Assuming that you had an inspection of a resale, you must call me regarding any problems even before you receive the written report, as we must notify the sellers within the time required by contract, or you will lose your right to raise those issues. Of course I will need the report when you eventually receive it. If I receive the report without hearing from you, I will assume that it is satisfactory to you regardless of the contents of the report. I can advise you and decide with you, but not for you, what items should be raised with the other side.

As soon as you have selected your lender, you should let me know the name of that lender, its address and phone number, the name of the contact person, the amount borrowed, and whether it is a fixed or adjustable rate mortgage. Before you finalize on a lender, you might want to check with us, as some lenders are particularly difficult to deal with, which could be reflected in your costs. Also, please let both me and your lender know whether the property which you are buying is a single family dwelling, a townhouse or condominium and the name of the development. There are some additional mortgage issues to consider if the property which you are buying is new construction. If you are purchasing new construction, although your new construction closing may be in the distant future, please note that the mortgage contingency in most contracts is only for forty-five (45) days. If this is the case in your contracts, and you do not apply for the mortgage until closer to the closing, you may lose your mortgage contingency. While it is true that your mortgage commitment will likely expire well before your new construction closing, even if your closing is more than 90 days from the time that you apply for the mortgage, it is better to have the commitment extended by the lender than to lose your contingency. Of course, if you are absolutely confident that you will receive a mortgage commitment, the contingency may be an irrelevant concern. Feel free to discuss this further with me.

Both the title company and the lender will need certain marital information to complete their searches. I mention this further in the section below regarding the sale of property and have attached a sheet which elicits information that we will need.

Lenders expect that all parties will appear at the closing. Not all lenders accept Powers of Attorney, and those that do accept them require that the Power of Attorney be executed by the non-attending party and reviewed by the lender in advance of closing. Advise us and the lender well in advance if you believe that a Power of Attorney will be necessary.

Further aspects of the timing of the closing will be discussed next. You should note that the closing date in the contract is not an absolute deadline. Beyond that, this issue differs greatly whether the property which you are purchasing is new construction or a resale. Assuming a resale closing, by New Jersey case law, effectively either party can delay the closing by up to 10 days. Assuming that the mortgage commitment comes on time, the closing is usually within ten (10) days of the date originally set. On the other hand, if the property is new construction, you are at the mercy of the builder. If the builder delays the closing, which it likely will do, the builder will not be liable to you for your added costs associated with those delays, including costs for such things as increased mortgage interest rates, additional rental costs, and other living expenses. Be prepared.

An additional point should be made about the closing date and builders' escrows. Although almost every New Jersey builder's contract allows the builder to delay the closing, it also requires that the buyers must close upon substantial completion of the property. The issuance of a Certificate of Occupancy is evidence of substantial completion. I have never found a builder agreeable to altering this language. Therefore, if the builder receives its Certificate of Occupancy, it can force you to close even though there may be several items that do not meet with your satisfaction. These items generally are placed on your "punch list" inspection sheet. The fact that you are made to close should not prevent you from going after the builder after the closing to compel him to complete the items if they are not otherwise completed after the closing. It does mean that you will have to close if the builder receives a Certificate of Occupancy. Since the builder can compel the closing, it would be extremely rare for the builder to agree to an escrow for uncompleted items. I should add that generally most builders eventually complete most, if not all, of the "punch list" items. As mentioned previously, before the contract becomes final, you should always attempt to check the reputation of the builder (e.g. with neighbors who have purchased from him) to determine the builder's past history for closing on time and for completing what is promised.

Some lenders and builders will try to get you to order title insurance through them. In spite of what they say, the title insurance industry is a regulated industry in New Jersey; therefore, the charges of all title companies are exactly the same. Also, be careful about their quotes. It is my experience that they only quote the charge for the insurance aspect of the bill without adding the search, endorsements, and examination portions. So that your title insurance is not ordered from two different title companies, do not authorize the lender to order your title work unless you first discuss it with me. Otherwise, you may pay twice for the title work.

Generally, there is not sufficient time to close on the contract date if we wait for the mortgage commitment before ordering the title and survey. It is my practice to order these approximately one month before the anticipated closing date, regardless of the status of the mortgage commitment so that I can have them and submit them to the lender with sufficient time to close as scheduled. There is some financial consequence to this approach. If the closing does not occur, a cancellation fee will be charged by the title company and the full survey fee also will be due, both totaling about $500.00. However, if things are not ordered in advance, we may not be able to close on time. Also, I generally assume that buyers do not want corner markers (iron pins) with the survey. Corner markers generally cost an additional $300.00. It has been my experience that few people want them. We have attached a form for you to advise us of your preference.

As a rough rule of thumb, the closing costs are approximately 5% of the sale/purchase price of the home, assuming that you are borrowing 80% of the purchase price, the mortgage origination/discount fee is 3 points, and there is no mortgage insurance (PMI). Under present practice, 3 origination/discount points is unusual, however, and closing costs should be less.

When you first start the process, you will have the following costs (approximations):

Most lenders want a homeowners' insurance policy with a one year's paid receipt prior to closing. They will not accept a binder or application. The policy should have a mortgagee clause naming the lender and giving its address. You should discuss the specific requirements with your lender. If the property is a condominium, please let me know the name of the condominium, and I will attempt to obtain "blanket" insurance from the Association (regardless, you should obtain insurance to protect yourself for liability and your belongings).

Finally, you will need to bring a cashier's or certified check to the closing (New Jersey Court Rules and Statutes prohibit us from accepting your personal check). This check may be made payable either to yourself or to the title company. Unfortunately, most of the figures needed for the closing come from the lender, and the lender does not give me its figures until late in the day on the day before closing. You can bring an estimated cashier's or certified check to closing if we cannot give you the actual amount due in time for you to get the check which you will need. If your check is for more than we need, the title company can write a check back to you. If the check is not enough, they can accept a personal check as long as the amount is not for more than my fee.

Next, let us discuss the sale of a property. My fee for a standard sale is $800.00. This fee may be increased to reflect use of time which exceeds a standard closing, travel more than twenty (20) miles from Lawrenceville, or preparation of a Use and Occupancy Agreement or a Power of Attorney. If there is no closing, you will not be charged the full $800.00 fee, but you will be charged a legal fee based upon the time we spent on your behalf. We will also charge you for photocopying, telephone toll charges, FAX, postage, messenger services, or other out-of-pocket expenses.

I would like to remind you about two closing costs. First, there is a Real Estate Transfer Fee, which is the obligation of the Seller. This fee is calculated on a two tier schedule: $935 for the first $200,000.00 and $7.80 per $1000.00 thereafter. Please advise me if you are 62 years old or older as there is a reduced rate for seniors. Second, the mortgage pay-off frequently surprises people because they forget that mortgages payments are made for the month prior to payment and that interest continues to accrue until the lender is in receipt of the pay-off. This interest is in addition to the principal balance. As a result, the pay-off for newer loans can be greater than the amount borrowed. Also, any home equity or bridge loans must be paid off at closing. Please realize that most mortgage payments are not posted by your lender until about ten (10) days after the payment is mailed by you; most attorneys will receive the pay-off letter from your lender about a week before closing. This means that unless you can make your mortgage payment to your lender at least two (2) weeks before the closing, you will probably not get your "overpayment" returned to you until sometime after the closing. If you have any questions regarding making a payment, call me.

If I have not already asked you for your deed, title policy, and survey or if you have not already provided them, please send them to my office now. Additionally, if either of you have been divorced, I need a copy of the divorce judgment to provide to the title company. If I represented you when you purchased the property within the last 12 years, I have copies of these documents in our storage facility; however, the storage facility will charge $50. Besides the documents referenced above, the title company will need certain marital information (as it does with your purchase); the government will requires certain information; and the other attorney will need mortgage pay-off information. So that I may comply with these information requests and expedite the closing, I have requested certain information on an attached form. Please take the time to fill it out and return it to me with the other documents.

In anticipation of the closing you must contact your municipality to obtain a Certification showing that you have complied with the State requirement for smoke and carbon monoxide detectors. Additionally, if the municipality in which your property is located also requires an inspection for a Certificate of Occupancy, you will need to make those arrangements. Therefore if your property is located in a municipality such as East Windsor, Hamilton, Hopewell, Lawrenceville, Plainsboro, Trenton, or Washington, you will need to make arrangements for a Certificate of Occupancy inspection. On the other hand, if your property is located in a municipality such as Cranbury, East Brunswick, Montgomery, Princeton, South Brunswick, or West Windsor, you will not need to make such arrangements. Finally, if your house is serviced by a well, you should obtain a well water certification (which will likely cost about $500). You should make arrangements to have these inspections performed about one month before the closing so that any needed corrections can be completed prior to closing. Your real estate agent can help you to arrange these inspections/ certifications. Furthermore, please confirm whether you did any work to the property which required permits; if you did, advise as to what you did, when you did it, and whether you obtained permits for the work.

As referenced above, it is important to know that the closing date in the contract is not an absolute deadline. This is also true for a resale. Assuming that the Buyer's mortgage commitment comes on time, the closing is usually within ten (10) days of the date originally set. Additionally, please note that the buyers generally expect to conduct their final "walk-through" inspection about two (2) hours prior to the scheduled closing. It is expected that the property will be vacant and broom cleaned prior to closing. You must schedule your movers accordingly. Please advise me if you expect any problems in complying with this timing.

If you do not plan to attend the sale, notify us enough in advance so that we can prepare and you can sign the Deed, Affidavit of Title, IRS form, and a Power of Attorney prior to the closing. Also, advise us as to how we should get the proceeds to you after the closing.

Feel free to call me with any questions which you have.

Very truly yours,

SZAFERMAN, LAKIND, BLUMSTEIN,
BLADER & LEHMANN, P.C.

RAY J. BARSON

Copyright © 2004 Ray J. Barson,
Attorney-at-Law
All Rights Reserved