PURCHASING YOUR HOME

The single largest financial commitment most people make during their lifetime is the purchase of real estate.  Purchasing residential real estate can seem particularly daunting if you are a first time homebuyer.  The process may seem overwhelming even if this is not the first time you have purchased residential real estate.  However, this pamphlet will explain the step-by-step process in easy to understand terms.  The goal here is to make you understand that it really is not a difficult endeavor and with the assistance of the Law Offices of Edward S. Danhires the transaction will proceed smoothly.

By the time you have contactedthe Law Offices of Edward S. Danhires, you will undoubtedly have visited many properties and have settled on what is hoped to be your next home.  You will have chosen the neighborhood, the location, considered the amount of real estate taxes and maintenance.  You will have done a visual inspection of the property, negotiated the basic terms such as price, closing date, amount of deposit monies and what is or isn’t included in the purchase.

CONTRACT OF SALE

The Real Estate Contract, or Contract, is a binding agreement between you and the Seller which forms the entire basis of the transaction.  It imposes and defines the legally enforceable rights of the parties.  If you have engaged the services of a real estate agent the Contract will typically be a preprinted form with the specific terms (such as names of the parties, property address, price, deposit amount, mortgage amount, closing date, etc.) entered onto the form.  The Contract will also provide a three day attorney review period in which our office will have an opportunity to review the terms and, if they are not acceptable, cancel the transaction or suggest additional provisions which would make it acceptable.  Thus, it is critical that our office be contacted immediately upon receipt of the fully executed Contract.

If you have not engaged the services of a real estate agent the Contract will be drafted by the attorney for the Seller.  In the event the Seller’s attorney drafted the Contract it is very important that you do not sign it until it has been reviewed by the Law Offices of Edward S. Danhires.  We will then be able to determine whether it meets all the requirements of a legally binding agreement and, after a discussion with you of the pros and cons, whether it is in your interest to sign it.

MORTGAGE

The Contract will provide a mortgage contingency clause.  This will allow either you or the Seller to terminate the transaction in the event you are unable to obtain a mortgage for the purchase of the property within a certain amount of time.  The mortgage contingency clause will also set forth the amount of the mortgage you believe you will need to proceed to closing.  As your attorney, we will review the Contract to make sure it provides you with ample time to obtain the mortgage commitment.  However, since either party will have the option to terminate the transaction if the mortgage commitment is not received by a certain date it is very important that you contact a few lenders and quickly decide who you will be using. 

It is also a good idea to immediately begin organizing the paperwork required by the lender for the mortgage application.  This should be done either before you have signed the Contract or immediately thereafter.  Items which will be required by the lender include, but are not limited to, the following:

1. Federal Tax Returns (1040) from last two years, with all schedules and W-2 statements.
2. Two consecutive pay stubs.
3. Evidence of any bonus payments for the last two years.
4. Statements covering three months for all liquid asset accounts (checking, savings, investments accounts, etc.).
5. Statements covering three months for all retirement accounts (IRA, 401K, etc.).

If you are receiving a gift for the down payment, a gift letter will also be required from the donor along with a statement showing proof the person has the funds available for the gift.

HOME INSPECTION

The Contract will also provide for a home inspection contingency clause which will allow you the opportunity to perform a home inspection.  You are free to use whoever you want provided they are a “qualified inspector”.  This means that they are licensed by the State of New Jersey to perform such inspections.  The cost of the inspection will be paid directly to the inspector by you at the time the inspection is conducted.  Present at the home inspection will be you, the home inspector and your real estate agent.

It is important that the home inspection be conducted immediately after the attorney review period has concluded.  The Contract typically includes a 7-10 day period from the signing of the Contract in which you will have the opportunity to inspect the property, review the resulting reports and convey to the Seller any deficiencies you wish to have addressed.  As your attorney, we will make sure you have ample time to achieve this.  We will also review the reports once they have been received, discuss any concerns you may have and communicate these concerns to the Seller’s attorney.  We will then negotiate a resolution acceptable to all parties so the transaction may proceed.

There are various types of inspections you may wish to consider.  These include:

1. Radon Test. Radon is a radioactive gas which emanates from the ground and you cannot see, smell or taste it.  The unacceptable level of radon is 4 pico curies per liter. 
2. Lead Paint.   If the property was built prior to 1978 there may be lead-based paint present.  Lead-based paint is harmful if it is digested or the particles become airborne.
3. Oil Tank. There will be a need to inspect any underground storage tanks on the property if it is heated by oil.  The purpose of the test is to determine if the tank is leaking and to confirm its structural integrity.  In the event it is determined that the oil tank is leaking the State of New Jersey must be notified and the Seller will be required to remediate the problem. 
4. Structural. This is by far the most common inspection undertaken by purchasers.  It covers structural defects, roof, basement, mechanical equipment such as heating, air conditioning, electrical systems, sewage, plumbing, exterior drainage, etc. 
5. Termite. This type of inspection checks for the presence of termites and other types of insect infestation or damage caused by such infestation.

There will not be a need for all these inspections.  You will need to consult with a qualified inspector to determine which inspections are right for you.  During the inspection you will have a chance to observe whatever deficiencies the inspector has observed and ask any questions you may have.  The inspector will then draft a report and forward it to you with a copy to us.  We will then discuss the issues raised in the report and convey any concerns you may have to the Seller’s attorney.

TITLE INSURANCE

As part of the process of purchasing your new home you will be required to obtain title insurance.  It is important to note that the price of title insurance is regulated by the State of New Jersey Department of Insurance and Banking.  The industry is heavily regulated and all title insurance companies charge the same basic rate.  As your attorney we will order the title commitment and review it to protect your interests in obtaining the property free and clear of any and all liens.  Note that the purchase of title insurance is a one-time charge.  You will only have to purchase subsequent title insurance if you choose to refinance or obtain a home equity line of credit at a later date.

Title insurance differs from other types of insurance in three respects.  First, it protects you against any problems which arise from mistakes made by the insurer, its agents, or independent contractors, such as surveyors and searchers.  Second, title insurance does not look forward but rather to the past.  Thus you are protected against any problems which occurred prior to the effective date of the title policy.  Third, issuance of a title policy is based upon a search and examination of the land records and the type of coverage the policy will contain is based upon what is found.

In essence, the title commitment will provide us with the following information as it relates to the property: 

1. Names of the owners.
2. Outstanding mortgages.
3. Liens.
4. Judgments against Buyer and Seller.
5. Amount of taxes.
6. Outstanding utility balances.
7. Master Deed (in the case of a condominium).
8. All other information which directly affects the property.

In addition, the title commitment will contain a survey exception which can only be removed with a survey or, if it is a condominium, a survey certificate.  A survey defect can adversely affect the marketability of the property.  Thus, as your attorney we will order the survey or survey certificate on your behalf and submit it to the title insurance company and your lender.  You will also receive originals as they may be used for up to ten years in the event you decide to refinance or open a line of credit.

HOMEOWNER’S INSURANCE

As we near closing, you will be required to obtain homeowner’s insurance.  In the case of a condominium the insurance will be paid by the condominium association and its cost will be a part of your monthly maintenance.  We will contact the insurance company and have your name and the lender added so as to reflect you as the owner with the lender holding a mortgage on the property.  We will also forward to both you and the lender copies of the Insurance Certificate. 

The insurance through the condominium association will provide for liability, casualty and flood (if required) coverage which will be limited to the common areas of the building.  It does not cover your personal property.  Thus, it is strongly advised that you obtain your own personal casualty and liability insurance to cover yourself and your personal property (this is referred to as a HO-6 policy).  Personal property includes such items as appliances, clothing, jewelry, computers, carpeting, etc.  You should contact an insurance company and discuss these issues with them to determine the best type of insurance for your situation.  Note that your lender will not usually require this type of insurance but you are strongly advised to obtain it.

If you are not purchasing a condominium you will have to obtain your own insurance with an insurance company of your choice.  Your lender will require a copy of the policy along with a paid receipt for one year.  The amount of the coverage must be at least the amount of the mortgage.  However, it is strongly suggested that you obtain coverage for the full replacement value of the property.

CONDOMINIUMS

A condominium is defined by statute as “the form of ownership of real property under a master deed providing for ownership by one or more owners of units of improvements together with an undivided interest in common elements appurtenant to each such unit.”  Put simply, it is a form of ownership where each of a number of units is owned exclusively while the remaining property, including the land, is owned in common.    The common elements will consist of such areas as the land, structural components, halls, corridors, lobbies, stairways, elevators, entrances, exits, gardens, parking areas, roofs and recreational areas.

To create a condominium the Sponsor of the project must file a master deed with the county clerk.  Once the master deed is filed the condominium is created.  By statute the master deed must contain the following elements:

1. A statement of dedication of the land to condominium ownership.
2. The name of the project, which must include the word “condominium.”
3. A metes and bounds description of the land.
4. A survey of the land.
5. Plans of the improvements showing location and dimensions of each unit and the common elements.  Each unit must be designated by letter, name, or number.
6. A description of the common elements and limited common elements.
7. The proportionate undivided interests in the common elements and limited common elements appurtenant to each unit, totaling 100%.
8. The voting rights of the unit owners.
9. The by-laws.
10. The method of amending and supplementing the master deed.
11. The name and nature of the condominium association.
12. The proportions or percentages and manner of sharing common expenses and owning common surplus.
13. Such other provisions as may be desired including but not limited to restrictions or limitations upon the use, occupancy, transfer, leasing or other disposition of any unit.

The administration and management of the condominium is governed by the by-laws contained in the master deed.  The day to day responsibility for managing the condominium is handled by the condominium association.  Most times the association will contract out these duties to a management company.  If the duties are not contracted out then the association president, treasurer and secretary will perform the necessary functions. 

As part of our due diligence we will contact the management company and obtain a copy of the master deed, the name of the insurance company and copies of the most recent financial statements for the condominium.  We will also confirm the amount of the maintenance, whether there are any planned or anticipated increases in the maintenance or special assessments and whether there is any ongoing or threatened litigation.  Finally, we will confirm that Seller is current in the monthly maintenance and obtain the amount of money due from all parties at the time of closing.  The master deed and the financial documents will be forwarded to you for review and we will advise as to the amount of the maintenance and money due at closing.

CLOSING

At this point you will have reviewed the home inspection report, master deed and financials of the condominium.  You will also have submitted all the financial documents required by your lender and we will have submitted the title commitment, survey or survey certificate and evidence of insurance.  The lender will have ordered the appraisal and submitted all these documents to underwriting for approval.  The underwriter will review all this information and, once satisfied, declare us cleared to close.

Once we are cleared to close we will contact the Seller’s attorney to discuss a possible closing date.  Although the Contract has a stated closing date it is more of a target date as all parties many not be available at the same time.  If the closing date is extremely important to you then we must be notified immediately upon receiving the Contract so we may proceed accordingly.

Prior to the closing, which typically occurs in our office, we will notify you of the total amount of money you need to bring.  You will be provided a breakdown of the various costs and the money you bring must be in the form of a certified check.  You will also be required to bring two forms of identification.  It is preferable that the forms of identification be your driver’s license and passport.

Also prior to closing you will meet with your real estate agent to set up a time to walk through the property to make sure that everything is in good order.  This should be done after the Seller has moved out and prior to closing so we may address any issues at the closing.

The fees that you will have to pay at the time of closing include, but are not limited to, the following:

1. Fees to be paid to the lender.  You will be advised of these fees when you apply for the mortgage but they typically include:

A. Origination fees.
B. Application fees.
C. Credit report fees.
D. Real estate taxes for the following quarter.
E. Interest from the date of closing to the end of the month.
F. Appraisal fees.
G. Escrows for taxes, mortgage insurance and homeowner’s insurance.
H. Attorney fees for the lender’s attorney, if any.

2. One time fee for title insurance.
3. Attorney fee.
4. Fees to record the Deed, Mortgage and any other documents with the county clerk’s office.
5. Survey fee.
6. Federal Express and messenger fees.
7. Capital contribution to the condominium association (if a condominium then there is typically a one time non-refundable charge of three months of maintenance).
8. Move-in fee (some condominiums charge a move-in fee).
9. Administrative fee (some management companies for condominiums charge a one time administrative fee).

There will also be per diem adjustments for the taxes and maintenance (if a condominium). 

The day of the closing you will show up in our office with your two forms of identification and the certified check representing the balance of the purchase price and all fees to be paid.  We will review the lender’s closing documents with you and have you sign them.  After you have signed all these documents we will meet with the Seller and their attorney wherein we will receive the Deed and other closing documents they have executed so that ownership is conveyed to you.  The Seller will also hand over all keys, garage door remotes and all other relevant items.   The Seller will receive the balance of the purchase price due him/her and we will be finished. 

This will conclude the formal process and you will be the legal owner of the property.  You are free to move into the property at any time.  Please note that we strongly advise that upon leaving the closing you immediately go to your new home and change the locks as you are now responsible for any damage which may occur. 

CONCLUSION

Our goal is to assist you each step of the way from the signing of the Contract to the closing.  We will keep in contact with you each step of the way to ensure that you know where we are in the process and to allay any concerns you may have.  With the help of the Law Offices of Edward S. Danhires you will find that the process is quite enjoyable as you learn all about your new home. 


From our offices in Hoboken, New Jersey, our attorneys at The Law Offices of Edward S. Danhires represent clients thoughout New Jersey and specifically in Hudson, Bergen and Essex Counties.  Representative neighborhoods include Hoboken, Jersey City, Bayonne, Kearny,North Arlington, North Bergen, Secaucus, Union City, Weehawken, West New York, Bogota, East Rutherford, Edgewater, Fort Lee, Franklin Lakes, Glen Rock, Hackensack, South Hackensack, Paramus, Ridgewood, River Edge and Teaneck.  If you are unable to come to us then we will come to you.  You may contact The Law Offices of Edward S. Danhires at (201) 418-0070 and we will get the job done for you.