Chicago attorney Ben Cohen recently got a call from a client who had just bought a home in Hyde Park. The buyer was upset, says Cohen, because the seller had taken the front door knocker with him-leaving behind a 12- by 18-inch, discolored area and lots of screw holes.
The real estate contract didn’t list the knocker as personal property because Cohen and his client assumed it was a fixture-legal lingo for what stays put when a property changes hands. They didn’t believe it fell into that sometimes-stays-sometimes-goes personal property collection that includes appliances, jungle gyms, outdoor gas grills, tetherball poles and bird feeders.
Fortunately, Cohen tracked down the seller in Ohio, who admitted the knocker was a fixture and returned it to Hyde Park.
Failure to define personal property is but one of many obstacles to home sellers and buyers in traversing this strange territory-where real estate lawyers thrive and door knockers cross state lines illegally.
What a better guide to our trip than those lawyers, whom we asked to name the most common pitfalls, mistakes and wrong turns that their real estate clients make?
Flying solo
Too often, buyers and sellers venture forward without attorneys at their sides.
“The home-buying process is so complicated, it’s penny-wise and dollar-foolish to make what is probably your largest purchase without legal counsel,” says Terry Smythe, partner, Smythe & Lee Attorneys P.C., Waukegan.
See an attorney before you sign the contract, rather than squeezing negotiations into the five to 10 days typically allotted in a real estate contract’s “attorney-approval” clause.
“This clause makes a contract tentative, giving you a false sense of security because you think you have an agreement but you really don’t,” says Dan Reed, partner with Schanlaber & Reed, Aurora. “It’s much easier to iron out discrepancies before you sign a contract than to make multiple changes under the attorney-approval provision.”
Details, details
Too many buyers focus their attention on the price, overlooking important contract details, says St. Charles attorney Jim Cooke. Take care to specify other contingencies (such as obtaining financing or selling your current home) as well as dates for possession of the property, final walk-throughs before closing and the closing itself.
“Buyers, make sure the contract includes a realistic post-closing possession agreement in case the seller cannot or will not get out of the house by the closing date. Include the amount of rent to be charged and the deadline for the seller to move out,” says Cooke.
“Include a large escrow-say, $5,000-to be paid to the buyer if the seller doesn’t leave on time. This sounds harsh, but you’d be surprised how often a seller won’t leave because he can’t get into his new home and it’s cheaper for him to pay rent for the old home than to get a hotel room, board the dogs and put his furniture in storage,” says Cooke.
“Try like hell to fix a closing date that allows possession on the closing date. Sellers in possession after closing (and buyers in possession before closing) are time bombs waiting to go off,” says Cohen.
Avoid closing at the end of the month, says Joe Fortunato, partner with Fortunato, Farrell & Davenport Ltd., Westmont.
“Nowhere is it written in stone that a closing must take place on the last day of the month-the busiest time of the month for real estate attorneys, title companies, home inspectors, real estate brokers and movers, so problems are magnified and mistakes are more likely to occur.
“If you’re going from house to house, each mortgage company will prorate your interest, so it doesn’t matter what day of the month it is,” Fortunato says.
Another often-overlooked detail: the subdivision’s or homeowner association’s restrictive covenants that may label everything from basketball hoops to above-ground pools as no-nos.
“Sellers, be upfront about the neighborhood rules. No use in trying to sell a house to a family with dogs if you know they won’t be able to build a fence,” Reed says.
Disclose, disclose
Some sellers fail to comply with Illinois’ new disclosure law, which requires them to submit to prospective buyers a disclosure form describing home defects-everything from roof leaks to termite infestation-prior to the closing.
“Don’t leave anything out when you complete the disclosure forms, or you may be liable. List all hidden and apparent defects,” says Dan Weiler, partner with Airano, Anderson, Bazos, Hardy & Castillo in Elgin.
“Many sellers don’t mention problems that they are aware of but that they don’t consider serious, such as a chronic, small leak in the basement that drains into the sump,” Cohen says.
The disclosure form has several dirty words to offend sellers-radon, lead, asbestos and infestation. The form demands the seller to fess up if he “is aware of” these bugaboos in his home. But it doesn’t require him to order tests; that burden is on the buyer.
The inspection
The home inspection is another common snafu. The wise buyer supplements the disclosure with a home inspection. The wise seller bites the bullet and fixes major flaws discovered during the inspection; otherwise, he should be prepared to lower his price.
The buyer can stipulate in the contract that the sale is contingent upon a satisfactory inspection, and that his deposit will be returned if a major, unacceptable flaw is revealed. If the seller cannot make the repair prior to closing, he should deposit money in an escrow account for post-closing repair bills.
Unclear titles
Another legal lasso: liens on the title. Buyers and sellers can avoid pre-closing headaches by making sure the title of ownership is clear, with no liens (legal claims) against the house or property.
Typical liens are government claims for property taxes or mechanics’ liens for subcontractors’ bills. Beware of “hidden” liens that can surface later because the sellers aren’t aware of them or because they are recorded after the closing. (Subcontractors have a few months to file liens.)
One hidden lien is the child support lien, Weiler says.
“Since 1987, child support is recorded as liens against real estate owned by the parent who makes the payments. As a buyer, you can check with the clerk of circuit court to make sure the seller’s payments are up-to-date. If you’re a seller who is the supporting parent, make a few payments ahead to avoid the problem at closing,” Weiler says.
Another typical title problem is encroachment. A survey may reveal that a neighbor’s shed, fence or driveway trespasses on the seller’s property. Or, the seller’s property encroaches on the neighbor’s.
Order the survey well ahead of the closing so the attorneys have time to review it and suggest remedies.
Haste makes waste
Failure to plan ahead creates last-minute problems. Whether you are the buyer or seller, resolve problems before the closing, Weiler says. Give your attorneys time to review the contract, title, survey, home inspection report and disclosure forms.
Schedule the final walk-through at least a day or two before the closing to allow enough time to negotiate solutions to problems that surface during the tour.
“The closing is not the place for negotiation. Buyers and sellers are under stress, not calm and rational,” Weiler says. “Resolve problems beforehand so everyone can sign the papers, shake hands and go home.”
NEW CONSTRUCTION
THE PATH IS NO LESS TREACHEROUS IF YOU’RE BUILDING
As the buyer of a new home, you don’t have to worry about home inspections and disclosure form omissions. But this path is no less treacherous. Steer clear of roadblocks that await you when you buy directly from a builder.
Following are a few tips from attorneys who are experienced builder-buyer liaisons:
– “A reputable builder is not necessarily a good businessperson or communicator. When you sit down with a builder to negotiate a contract, you’ll see the builder’s true colors,” advises St. Charles attorney Jim Cooke. “If you can’t get along with him or her at this point, hire someone else.”
When you lock into your interest rate with your lender, consider locking for longer than the standard 60 days. Your new home may not be ready for 90 days. Consider paying the extra charge for an “extended lock” on your rate in case interest rates soar in 60 days.
– Review your builder’s contract with your attorney before you sign it. Chances are, your attorney will add plenty.
– Add walk-through dates to the contract, scheduling one a week or two before the closing and one the day before. This gives the builder time to tackle the “punch list” you write up after the first walk-through.
– Many contracts say the closing will occur after the builder obtains an occupancy permit.
“Not good enough,” says Cooke. “Put the exact completion/closing date in the contract, plus a note that the closing could occur sooner if agreed to by both parties.”
– “Insist on hold-back clauses to reserve funds to cover work not completed by the closing,” says Cooke. “Specify time frames and put money in escrow until the work can be done. The builder may complete the house in January, but the driveway may not go in until spring. If the builder doesn’t return to put in the driveway, you’ll need the money to do it yourself.”
– Review the builder’s warranty before you sign the contract, says Cooke.
– Pay the builder as little as possible upfront, says Joe Fortunato, partner with Fortunato, Farrell & Davenport Ltd., Westmont. The builder usually uses this money to buy materials. The less you give him, the less you lose if he goes out of business while building your house.
– Write up each change (materials, design, suppliers) on an official “change order form,” including the cost and how it will affect the construction completion date. You and your builder should sign each order, then attach them to the contract.
“At least put the changes in writing. Too many closings are complicated because the buyer and builder disagree about changes made along the way and resulting costs,” says Cooke.
– Get copies of your blueprints. Some builders are reluctant to surrender them, but you’ll need them in the future for repairs and add-ons.
– Ditto for a list of subcontractors. You may want to call one of the original subs down the road.
– Ask your builder to sign a tax reproration agreement, which allows you to sit down after the closing, when the tax bill arrives, and recalculate who owes what.
