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Residential Real Estate Mortgage Loan Commitment Letters
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Real Estate and Property Law covers a broad range of issues regulated by federal and state statutes, as well as common law. It is a complex practice area, further complicated by the significant inconsistency in the laws throughout different cities and states. The firm’s real estate practice attorneys have decades of experience assisting clients navigate this complex and ever-changing legal area. For the convenience of our clients, our real estate attorneys are also state licensed insurance producers, which allows the firm to offer title insurance from top title insurance underwriters.
Our firm’s real estate practice attorneys advise and represent clients on the complete range of real estate issues, including:
- Residential and commercial purchases and sales
- Title to real estate
- Residential and commercial developments
- Residential and commercial leasing
- Entity formation
- Tax issues
- Homeowners’ associations
- Condominium issues
- Sales contracts
- Acquisition, development and/or conversion of properties
- Landlord-tenant leasing and/or disputes
- Real estate disputes, including defenses to title or quiet title actions
- Private and traditional mortgage lenders
- Real estate owners
- Homeowner and condominium associations
- Buyers and sellers of real estate
- Real estate brokers
Frequently Asked Questions
The purchase contract is the most important step in purchasing a home. The details of this agreement determine what you buy or sell and how you buy it or sell it. Our firm’s real estate attorneys can help with this process. In any event, before signing, read the agreement carefully and consider the following:
- Will the purchase be contingent on various matters such as the availability of financing on acceptable terms or the sale of the house which the buyer presently owns?
- Exactly what land, buildings and furnishings are included in the offer? Are appliances, certain fixtures and other personal property included in the purchase price?
- When can the buyer take possession? Are there any holdover tenants or parties in possession?
- Is the seller required to provide good, marketable title? Marketable title is title that can be readily marketed (sold) to a reasonably prudent purchaser aware of the facts and their legal meaning concerning liens and encumbrances.
- Who pays for the examination of the title to the property in the event the offer is accepted? Who pays for the abstract of title or title insurance?
- Have utilities been installed if the property is new construction?
- Who pays for the cost of the survey of the property? Does the lender require a survey as a condition of the loan approval?
- Should the purchaser conduct and pay for a separate home inspection?
- What kinds of disclosures are a seller required to provide to a purchaser, and what happens if those disclosures are not provided?
- If your offer is accepted, who bears the risk of loss if the property is damaged prior to closing?
- What persons (such as husbands or wives) are required to sign and accept the offer?
- What are the remedies if the buyer or seller defaults under the contract?
- Are there real estate brokers involved? If so, who pays the commission? Is the commission payable even if the sale does not close?
- Whose responsibility is it to pay for governmental special assessments that arise prior to closing?
- What type of deed will be conveyed?
A title examination is a study of the records related to the ownership history of the property and sometimes of other matters related to ownership interests in the property. An abstract of title is a collection of public records relating to the ownership of a parcel of real estate. During the examination, Our firm’s title examiners review the applicable title information pursuant to applicable state title standards to determine who owns the lands, whether there are any defects in or claims against the ownership and whether any action is needed to make sure the purchaser obtains good record title to the property at closing.
A title insurance policy insures the status of title in the name of the owner of the policy. Title insurance policies are issued by title insurance companies. The title company contracts with the insured person named in the policy to protect against financial loss related to the title, as well as the cost of defending the title in court. The title company searches and examines documents related to the ownership and items affecting the property prior to issuing a policy. It provides a source of indemnification to the named insured if he or she is damaged by a negligent or bad title search or examination and also from hidden defects that would not be discovered in a title search. For instance, a title defect resulting from a forgery would not be revealed in a search or examination of the public records but would be covered by the title insurance policy. The firm’s real estate attorneys are licensed title insurance producers, and can offer title insurance to its clients from top title insurance underwriters. Title insurance will defend against a lawsuit attacking the title as it is insured, or reimburse the insured for the actual monetary loss incurred, up to the dollar amount of insurance provided by the policy.
It is important that you carefully identify all parties taking title and how title is to be held. States vary in how title may be held, but the following are examples of typical methods of holding title:
- Sole Owner. Under this approach, title is taken in the name of only one individual grantee and is freely transferable or subject to encumbrance by that grantee, subject to dower and/or homestead rights described below.
- Joint Ownership with Right of Survivorship. Title can be taken in multiple names under this approach. Each joint tenant owns an undivided interest in the entire property. The “survivorship” language means that if one joint tenant dies, that person’s interest is automatically transferred to the remaining joint tenants.
- Tenants in Common. Title held as tenants in common, like joint tenants, allows title of the entire property to be held in multiple names. Title is also freely transferable or subject to encumbrance (as to the transferring tenant’s own interest) by each tenant. However, there is no right of survivorship in the surviving tenants upon one tenant’s death. Also, note that equal percentage ownership is presumed unless the deed specifically states otherwise. For example, unless the deed states otherwise, if there are three grantees, each grantee will own a one-third interest. It is always best to state each co-owner’s percentage ownership interest in the deed to avoid any uncertainty or misunderstandings.
- Tenants by the Entirety. Title can be taken as tenants by the entirety only by a validly married husband and wife. This form of ownership does not exist in all states. As tenants by the entirety, neither tenant may transfer his or her interest to a third party or encumber the property without both parties joining in the deed or mortgage. Upon the death of one party, the property automatically becomes the sole property of the surviving spouse.
- Title Conveyed in Trust for the Benefit of the Purchasers. Under this approach, legal (record) title is transferred to a trustee (for example, the grantee would be “John Doe, as trustee under agreement dated June 1, 2005”). Care should be taken in using this approach since there are more complex concerns involved.
There are various types of deeds which may be offered in a real estate transaction. Each bear their own legal significance and care should be taken in selecting which one to accept at closing. Typical deeds offered are as follows:
- General Warranty Deed. A general warranty deed guarantees the grantor’s good title before the conveyance, and that warranty continues after the conveyance. The usual guarantees or warranties by the seller are: good title, freedom from encumbrance other than as specifically identified, and right of possession to the buyer as against all others. The warranty includes any claims arising during or prior to the grantor’s ownership.
- Quit Claim Deed. A quit claim deed contains no warranties of any kind and conveys only the interest, if any, held by the grantor (for example, if the grantor actually had no interest to convey, the quitclaim deed would not vest any ownership in the grantee).
- Fiduciary Deed. A fiduciary deed is a deed granted by a trustee or other fiduciary (often a court-appointed individual or entity) who conveys title to property pursuant to that grantor’s authority under a trust agreement or as the result of a court-supervised proceeding.
A survey is a drawing of the property which should show any improvements to the property (such as buildings, driveways and the like), the boundary lines of the property, and any encroachments affecting the property (whether items encroaching on the property by third parties or encroachments by the property against a neighboring property). What details are included in a survey depends entirely on what was required of the surveyor in the contract hiring the surveyor, and what is implied by the certification the surveyor gives on the face of the survey. Surveyors have the ability, if asked, to certify many things, such as: (i) whether the improvements are all located within the boundary lines; (ii) in which flood zone the property is located; (iii) whether the structures are in compliance with applicable setback and height laws; or (iv) whether the property has access to a public right of way.
An easement is an interest in land which is owned by a person who is not the owner of the whole parcel, such as the right to use or control a portion of the parcel, or an area above or below it, for a specific limited purpose (such as to cross it for access to a public road, to share a common drive with a neighboring property, or to install and maintain utility wires or lines). The land benefiting from an easement is called the dominant estate; the land burdened by an easement is called the servient estate. Unlike a lease or license, an easement may last forever, but it usually does not give the holder the right to exclusively possess, take from, improve, or sell the land. Some common easements may include: (i) a right-of-way; (ii) a right of entry; (iii) a right to the support of land and buildings; (iv) a right of light and air; or (v) a right to water. The owner of the servient estate is normally free to use his or her property as he or she chooses, provided that use does not impair the rights of the holder of the dominant estate to use the land covered by the easement. The firm’s real estate attorneys can help assess the impact of an easement on your property and assist with any issues that result from same.
An escrow agent is typically a third party designated to hold an item (usually funds, but sometimes certain documents, such as a deed and/or mortgages) for a certain time or until the occurrence of a condition, at which time the escrow agent is to hand over the item to another party. Our firm has a strict policy concerning its escrow accounts to ensure that all funds are monitored and accounted for at all times. Because of the increasing amount of check fraud (including bank checks) our firm requires that any funds presented in the form of a check must wait to be cleared for availability for ten (10) business days. Our firm prefers that any funds submitted for escrow be wired since said funds are available at the time they hit the account.
Typically, the seller does not guarantee how the area surrounding the property will be used. Some purchase agreements ask the seller to warrant what the seller knows about surrounding property uses that might interfere with the use of the home, but many do not. If a buyer is concerned, our firm’s real estate attorneys can help you determine or understand how surrounding uses may affect you.
Financing a property is the standard method by which individuals and businesses can purchase residential and commercial real estate without the need to pay the full price in cash up front from their own accounts at the time of the purchase. Financing for non-residential real estate is generally obtained from a bank, insurance company or other institutional lender to provide funds for the acquisition, development, and operation of a commercial real estate venture. Commercial financing loans are secured primarily by real estate and related assets owned by the debtor. Assets used to collateralize commercial finance loans, aside from the real estate, may include fixtures, equipment, bank and/or trade accounts, receivables, inventory, general intangibles, and supplies. Documents evidencing and securing the loan typically include: loan agreements, promissory notes, mortgages or deeds of trust, assignments of rents and leases, financing statements, environmental indemnity agreements, guaranties, subordination, non-disturbance and attornment agreements, estoppel certificates, and other ancillary documents.
The Uniform Commercial Code (“UCC”) is one of a number of uniform acts that have been drafted to harmonize the law of sales and other consumer and commercial transactions throughout the United States. Article 9 of the UCC governs the creation, perfection, and priority of security interests of a creditor (lender), also called a secured party, in the personal property of a debtor, including fixtures. Like a mortgage lien, a security interest is a right in a debtor’s property that secures payment or performance of an obligation, created in a separate security agreement, or by additional terms right in the mortgage or deed of trust document. In order for the rights of the secured party to become enforceable against third parties, however, the secured party must “perfect” the security interest. Perfection is typically achieved by filing a document called a “financing statement” with a governmental authority, usually the recorder of the county in which the property (which is the security for the debt) is located, as well as with the secretary of state of the state in which the debtor entity is formed, subject to a number of rules applicable to natural persons and certain types of corporate debtors. A financing statement itself does not create the lien or security interest, but when properly filed, only gives notice of the security interest created in the security agreement. A security interest grants the holder a right to take action with respect to the personal property that is subject to the security interest when an event of default occurs, including the right to take possession of and to sell the collateral apply the proceeds to the loan.
An environmental indemnity agreement is an agreement by which a debtor indemnifies the creditor against any claims or losses arising from environmental contamination of the mortgaged property. Creditors want environmental indemnities to protect against loss or damage due to the creditor’s position as a lien holder or trustee where the creditor has not caused or contributed to, and is otherwise not operating, the mortgaged property.
Some creditors may require a guaranty of the loan by one or more of the members, investors, partners, or shareholders of a business organization which is the debtor. A guaranty is a promise of a third party to pay a debt or perform a duty under the loan documents if the debtor fails to do so. Guaranties are an added assurance to the creditor for payment and performance of the obligation under a debt, and provide another avenue for the creditor to pursue in the event of default by the debtor.
Lenders may require other collateral documents in a commercial financing, typically to allow them to have the full benefit of the collateral in the event of a default. If the loan is for a construction project, the lender may require an assignment of the construction contract, architects contracts, permits, maintenance agreements, service agreements, agreements of sale, and other similar agreements that enable the debtor to develop and operate the property. These agreements may be viewed by the creditor as documents that they would like to have the benefit of in the event the debtor defaults under the loan and the creditor or third-party purchaser takes title to the property at foreclosure.
For certain financing transactions, some creditors may require a debtor to become a special purpose entity or single purpose entity (SPE). Any type of business entity can be an SPE, although they are commonly formed as limited liability companies. SPEs are typically created to fulfill narrow, specific, or temporary objectives. Creditors often require that the debtor be an SPE to isolate financial risk by limiting the possibility of the bankruptcy of the debtor, including requirements to conduct its business under its own name as a separate entity, and only engage in business matters expressly permitted under the SPE’s basic documents (which cannot be changed without the lender’s approval).
A due on sale clause is a provision in a note, mortgage, or deed of trust whereby the entire outstanding debt becomes immediately due and payable at the creditor’s option upon sale of the property acting as collateral for the loan. Typically, such provisions are used to prevent a subsequent buyer from assuming the existing debtor’s financing at less than existing market value.
A property owner must decide whether it will own property in an individual name or in an entity. Entity options include the joint venture, general partnership, limited partnership, limited liability partnership (LLP), limited liability limited partnership (LLLP), “subchapter C” corporation, “subchapter S” corporation, limited liability company (LLC), business trust, land trust, or real estate investment trust. The choice of entity for purposes of commercial financing is one that will be dependent on many factors, including tax considerations, identities of the owners, whether there will be preferred returns, who will operate the project, state law, and the like. Our firm’s real estate attorneys can help you select an appropriate vehicle for purchasing property.
A junior lien is a lien on real property that is subordinate in priority, either by time or by agreement, to another (a “superior” or “senior”) lien. Oftentimes, the same creditor that extended the first financing will also provide additional financing, secured by a lien that is to be secondary or subordinate to the first loan.
Sometimes an institutional lender participates with other lenders in making a single mortgage loan to a single debtor; this is a participation loan. Participation loans are a way for smaller banks to take a piece of a larger loan transaction thereby spreading risk. Also, a loan amount may be too large for any one creditor under its lending regulations, and other lenders are needed to fulfill the additional financing requirements. A lender can also make the loan individually and later sell “participations” in that loan to other investors or financial institutions. Either the loan agreement or a separate participation agreement will define which lender has authority to enforce the loan terms.
If the owner’s equity and lender’s loan together are insufficient for the financial needs of a property, a borrower may sometimes also seek out one or more additional lenders to finance the project. Many creditors have become increasingly hostile to secondary financing involving a junior mortgage lien on property on which they hold a mortgage. Mezzanine loans are a form of junior financing that does not secure the real or personal property assets of the debtor covered by the first mortgage, but rather is a loan secured with a pledge of the ownership interests in the debtor. Mezzanine loans are often arranged in a highly structured financing, contemporaneously with the first mortgage loan. In case of default of the mezzanine loan, the lender takes over the ownership of the borrower entity, not the property itself.
A creditor can foreclose, or “shut out,” the interests of the debtor in the event of default under the debt or other obligation. Foreclosures are a method the creditor can use to seize the mortgaged property acting as collateral for the obligation, terminating the debtor’s equity of redemption, and either take ownership and possession of the land or sell the rights to a third party and use the proceeds of that sale to pay down or pay off the debt. Some jurisdictions recognize non-judicial foreclosure sales held without supervision of a court; other jurisdictions only recognize judicial foreclosures. Foreclosures are one of the remedies available to a creditor in the event of default under a mortgage instrument.
A power of sale is a clause in mortgages that grants the creditor or trustee the right to sell the property upon certain defaults without court authority. When a mortgage gives the creditor the power, and state law does not prevent its exercise, the creditor can arrange for a non-judicial sale of the interests of the defaulted debtor. A sale conducted in accordance with a power of sale provision is a public sale, and statutes governing such provisions regulate the conduct of the sale and the method of giving notice. The purchaser in theory obtains the same rights in the property he would enjoy had he purchased at a judicial sale, since the creditor is selling the title as it existed when the mortgage or deed of trust containing the power of sale was given.