Q: I am selling my real estate. Somebody suggested I use a title company for my closing but most of my friends recommend using an experienced attorney. What exactly does an attorney do for a seller in a real estate closing?
A: It is an all too common misconception that title companies can represent sellers. Title companies represent no one, let alone sellers. They are only allowed to prepare documents necessary for issuance of title insurance policies. They cannot provide legal advice, explain contracts, prepare contracts or amendments to contracts.
If a seller picks a title company to handle the sellers’ closing, the title company refers it to an attorney selected by the title company if the title company is not using title insurance. The attorney charges a fee, the title company adds an escrow fee and other charges and the seller rarely even gets to speak with the attorney. Setting aside the ethical and legal issues accompanying this arrangement, it is difficult to believe a seller would pick a title company for assistance in closing if the seller knew the title company had to legally get an attorney to actually prepare the closing documents.
An experienced attorney provides sellers with a wide range of services and advice, not the least of which is making sure the seller gets the proceeds of sale. The attorney reviews the contract, contacts the seller and answers questions about the contract. All deadlines are calendared to be sure the seller meets the contractual requirements. The attorney will discuss with the seller any possible problems such as travel plans for the seller, death of a co-owner, partnership disputes and even the seller’s financial situation. This helps insure all issues are addressed and the closing goes smoothly.
Under the local sales contract, a seller saves $200.00 by providing the buyer with the seller’s prior title insurance policy. The attorney will search for that policy, even if the seller does not have a copy. If the property is in a condominium or homeowner association, the attorney will assist in obtaining condominium or association approval and any documents the seller is required to provide to the buyer under the contract.
One of the biggest areas of services by real estate attorney is in resolving seller issues such as liens. Where the seller is a corporation, limited liability or trust, documentation must be obtained to prove authority to execute contract and closing documents. Often, those documents must be prepared by the closing attorney. In some cases, probate is needed because a co-owner has died. Other problem areas include tax liens, title problems, open building permits and obtaining written confirmation of payoff amount for mortgages.
Another area of significant service by the closing attorney is with respect to contract disputes and other issues that arise on the way to closing. Those include disputes about condition of the property and other contract disputes. Addenda to the contract are often needed to extend closing date or resolve inspection problems. In some cases, a lease or occupancy agreement must be drafted where the seller wants to remain in the property after closing or the buyer wants to take possession before closing.
The real estate attorney will prepare all closing documents. These will generally include a deed, bill of sale, a seller’s affidavit confirming there are no liens or lien rights against the property, a non-foreign affidavit and a closing statement. The closing statement is important, as the seller will use the closing statement in reporting transaction for tax purposes. Preparing closing statement, the attorney will prorate taxes, assessments, insurance and other items in accordance with the contract requirements.
It is not uncommon for our sellers to be out of State at time of closing. For those sellers, the closing attorney will send all of the necessary documents and make sure they are properly executed. The seller’s attorney will coordinate closing to obtain the closing funds, pay off the seller’s mortgage, pay commissions to Realtors, pay off and arrange satisfactions of any liens and follow up to be sure satisfactions are placed of record. If necessary, the seller’s attorney can address post-closing issues such as later discovered defects in the property, re-proration of taxes, title problems and how the transaction is to be reported on a 1099 form for tax purposes.
In more complex transactions, attorney services can be invaluable. These will include preparation of documents in connection with the short sale (which may also include negotiating with the mortgage holder) lease issues, seller financing (preparation of mortgage and note) and like kind exchanges under which the seller attempts to defer taxes by treating the sale as one part of trade for other property. At all times, an attorney can provide expert legal advice.
Real estate transaction can present unexpected problems. Contracts are often signed without prior review by an attorney. Many contracts have language added by the parties at time of signing, which the parties later have different opinions as to meaning. Title problems, disputes about condition of the property and potential litigation are always possible. If you are planning on selling real estate, you are well advised to retain an experienced attorney at the earliest possible time for guidance and assistance and to avoid mistakes and problems.