By: Michael Siegel, Esq.
There are two basic issues in any Real Estate Contract.
The first issue is: can the buyer pay for the property? The second issue is: can the seller sell the house free and clear of any legal encumbrances?
In other words, if the buyer can come up with the money to buy, will they become the absolute owner of the premises without any competing interests? The legal term for this is Fee Simple Absolute.
Going to the purchaser’s ability to pay, the majority of purchasers, especially first-time home buyers, aren’t paying all cash to buy a property. They need to borrow money to make the purchase.
A Real Estate Contract generally gives the purchaser a period of time to apply for a mortgage and have a lender issue a letter stating either yes we will loan you the money (a mortgage commitment), or no we won’t loan you the money (a declination). A purchaser’s down payment or earnest money is held in escrow to insure that they make a good faith attempt to obtain either one or the other.
If their lender gives them a commitment for the money, then we know they have the money they need and they become obligated to buy. If the lender turns them down, we forward that declination to the Seller’s attorney and they get their down payment back and the Contract to buy becomes null and void.
Going to the Seller’s ability to sell free and clear of legal encumbrances, the buyer's, via their attorney, hire a title company to search the public records.
They search the public records for information about the Sellers and the property, and the past owners too. This is because New York is what we attorneys call a “race notice" state. In a race notice state you must record any interest you have in real property in the public records. If you don’t record your interest, and someone buys the property – your interest, as far as the new owner is concerned, is moot.
So we know that a title company’s search of the public records will tell us what, if any, legal encumbrances exist against the property. The most common encumbrance we find is the seller’s mortgage. If the seller has any legal judgments against them, if the property has ever been cited by any government agency, those will show up in the search.
There are a few other things a seller promises to the buyer in most real estate contracts: They promise that the plumbing, heating, electrical systems and appliances work. In other words you turn them on and they work. They are not new. They are used, but they work when they are turned on.
They also promise that the premises have a Certificate of Occupancy allowing you to live in the house; and they promise that when they turn the house over to you, and hand you the keys, the house will be in broom clean condition.
There are other things in a Real Estate contract that we concern ourselves with regarding how we solve issues that arise during contract, and at closing, but for the purposes of understanding a Real Estate Contract this is the basic understanding between the parties.
Once it is confirmed that all issues on the Seller's side are cleared and the buyer's mortgage lender provides a clear to close, a closing can be set up. At the closing the seller gets the proceeds of the sale and the buyer gets the deed, and the keys to their new home.
Michael R. Siegel is an Attorney and Counselor at Law, Licensed to practice in the State of New York, the Eastern and Southern Federal District Courts in New York, and the Supreme Court of the United States of America. He received his Juris Doctorate from the Benjamin N. Cardozo School of Law, Yeshiva University in May of 1999, and has been in private practice since January of 2000. Prior to becoming an attorney he was an administrator at New York City Parks and Recreation where he had a long career in Public Service, starting as a New York City Urban Park Ranger in 1979, he became a Mounted Urban Park Ranger, NYC Park Historian, Assistant to the Brooklyn Borough Commissioner of Parks, Director of Capital Projects for Brooklyn Parks, and was Chief of Staff for Brooklyn Parks when he left Parks & Recreation to attend Law School in 1996.
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