Legal Costs You Need to Plan for When Buying or Selling
Both buyers and sellers of real estate need to plan for legal expenses as part of the cost of completing a transaction. These legal expenses are for the most part predictable although occasionally an unusual problem arises that raises the costs.
Most real estate matters are straight forward and routine but there is no way of knowing when something out of the ordinary will occur. Both buyers and sellers are paying for good and competent legal representation by an experienced real estate lawyer. That counsel knows not only how to fix and solve any real problem, but more importantly how to spot the problem in the first place. Money paid for legal expenses is well worth while. There is a reason lenders require lawyers to handle their paperwork. They want protection for their investment. The same logic applies to both buyers and sellers. The following is an example of the most common legal expenses for buyers and sellers in a typical real estate transaction.
1. Deed Preparation
Both buyer and seller will have legal costs involving the preparation of the deed transferring title to the real estate. One side will have to pay an attorney to draft the deed. Local custom and law usually determines which party has that responsibility. In any event, the other party needsneeds a lawyer to review the proposed deed, and make certain it is correct. Not only does every part of the deed need to be examined, it is important to determine if some necessary or desirable language was left off. For example, if the land is landlocked, there needs to be language stating how and when legal access was obtained. Both parties will pay their attorney until there is an agreement on an acceptable deed.
2. Seller Documents
Normally there are at least two documents that need to be prepared by an attorney for seller. One is an affidavit that lists all existing liens of record, such as a mortgage or tax lien. It also must contain a statement that there is no one person or entity who could file a lien but has not done so. An example would be unpaid work done on a house. The contractor could file a lien but would not do so if paid in full. This is important because the time limit to file the lien could well be past the closing. The buyer needs to know there is no one out there who could file that lien, and the buyer's lawyer will examine the affidavit to make sure it says just that. The other document contains the tax information to be reported to the IRS.
3. Title Search
This is an expense of the buyer. The attorney will search the public records, and verify that the seller has good title. If the attorney finds any problems, it will then the responsibility and cost to the seller to fix those problems. The usual items are an unpaid mortgage that will be paid out of the seller's proceeds, and the current year's taxes which are prorated between the parties as of the date of closing. Both lawyers will verify for their respective clients that the calculation is done properly.
4. Loan Documentation and Related Requirements
This is a major expense for the buyer. The lender will provide the buyer's attorney will all the necessary requirements to close the loan. The attorney will work with the lender until the lender is satisfied that all is in order. Once that is done, the loan proceeds can be released. The buyer will need to assist their lawyer so all the information is correct, and the costs can be minimized. Lenders can be very specific in their requests, and since it is their money, those demands must be met in a timely fashion.
5. Documents in a Cash Sale
A cash sale eliminates the loan documents and makes the transaction easier and faster. Both parties still need to pay an attorney to prepare and review the deed and sellers’ documents. The buyer will still need a title search, and any problems found will have to be resolved at whatever expense. While not required, the buyer may choose to pay for a survey and an attorney to review the survey. Any problems found would be at the expense of both parties until a resolution is met.