BLOG

The Beginning:

NY: When an offer is accepted, the real estate agents prepare a “Deal Sheet” with the basic terms of the deal.  Although sometimes referred to as a “Binder” this is not binding on either party.  Once the Deal Sheet is completed it is then forwarded to the Purchaser’s and Seller’s respective attorneys and the Seller’s attorney will then draft a proposed Contract of Sale and deliver same to the Purchaser’s attorney.  The attorneys will then negotiate the terms of the proposed contract, by either making changes to the form contract or adding a Rider.  Once the terms are all agreed upon, and the inspections are completed, then the Purchaser signs the contract, provides a check for the contract deposit and then the Seller countersigns the contract, then it is considered “In Contract.”

NJ:  When an offer is accepted, the real estate agents prepare a basic Contract of Sale to be signed by both the Purchaser and the Seller.  That begins the “Three (3) Day Attorney Review” stage.  Within three (3) days both parties will choose an attorney to represent them and review the contract.  Typically one or both of the attorneys will “reject” the contract, but however approving it if certain terms are agreed upon, this is called the “Attorney Review Process” and the new provisions are added and agreed upon via the Attorney Review Letter.   Once the terms are agreed upon, then it is considered “out of attorney review.”  In the event either party does not retain an attorney, and the contract is not rejected, then the real estate agents’ form contract shall become binding after the passage of three (3) days.

Inspections:

NY:  Contracts are “as is” and not contingent upon any inspections, therefore the Purchaser will usually get the inspections completed prior to signing the Contract of Sale.

NJ:  Contracts are contingent upon inspections, therefore the Purchaser will typically get the inspections completed after the contract is out of attorney review.   In NJ, it is recommended that the Purchaser in addition to the typical home inspection and termite inspections, they perform a “tank sweep” as the presence of abandoned underground fuel storage tanks is more common.  Also, if the house is serviced by a well, then the law (and contract) requires that the Seller pay for and perform the test for potable well water.  If the parties cannot come to an agreement in connection with the inspection results, then the Purchaser may choose to continue or cancel the contract with all deposit monies refunded.

Both:  If any agreement for repairs or seller credits are made in connection with the inspections, then that agreement will be reduced to a writing, in the form of a “ Repair Rider”.

Financing Contingency:

NY:  Typically the Purchaser has 45 days from the date of the contract to procure financing.

NJ:  30 days.

            This timeframe is called the “Mortgage Contingency Period.”

Both:    If within the Mortgage Contingency Period, the borrower is denied a mortgage commitment, then Buyer can terminate and all deposit monies are returned. Or in the alternative, the Purchaser may then elect to waive the Mortgage Contingency and proceed to closing without financing.

Closing Costs:

Closing costs in NJ are generally less than those in NY due to two things:

• New York State Mortgage Tax (No Mortgage Tax in NJ)
• Title Loan Policy in NY is based upon the mortgage loan amount (Only cost $25.00 in NJ)

Closing Timeframe:

NY:  Approximately 60 – 75 days

NJ:  Approximately 45 – 60 days

Closing Procedure:

NY:  Prior to the COVID Pandemic all parties, including the title company and an attorney for the Lender appeared at the closing and signed their respective documents and delivered checks for closing costs and sellers balance check.  This is considered a “traditional NY style closing.”   However, since the pandemic, this style has been modified to a more “escrow style” closing procedure.

NJ:   Generally, only the Buyers, the Buyers’ attorney and the title company (also acting as settlement agent for the Lender) appear at the Closing.  Sellers provide all their signed documentation to the title company to hold “in escrow” until the conclusion of the closing.  This is considered an “escrow style closing.”

If you have any questions, or if you have clients who need assistance, please, do not hesitate to contact our offices. We are here to help!

Typically, residential real estate contracts contain an “on or about” closing date. This is not a firm date, strictly enforceable against either party, but rather, a best estimate and the goal of the parties, at the time that the contract was entered into. Clearly, issues such as title exceptions, mortgage and finance contingencies, as well as the availability of the parties, their counsel, bank attorneys, title closers, etc., all lend uncertainty to trying to predict a precise closing date at the time of contract. Thus, a reasonably estimated date is picked (usually 60-90 days out from the contract signing), with both parties knowing it is subject to change, etc. Neither party can sue, or default, the other, for not being able to close on the “on or about” date.

While customarily a mutually agreeable closing date is eventually scheduled, if one party is resistant, or fails to confirm a closing date, the other party has two options: first, demand a contract rider or amendment, where both parties agree on a firm date, in writing. This language would say that “time is of the essence” as to the new closing date; this makes the closing date (referred to as “law day”) and it becomes a strict date that must be complied with, and is no longer a flexible “on or about date”. If either party fails to close title on such day, they are in default of the contract.

The second option is what is commonly referred to as a “Time of the Essence” Letter (TOE Letter). This is a unilateral designation by one party, of what the closing date will be. Because both parties are not agreeing to this date, and the date is being chosen solely by one party, the Courts have, through common law and case-law precedent, put a number of conditions on TOE Letter closings.

First, the TOE Letter must give reasonable advance notice of the closing date. Clearly, sending a letter today, which demanded that the party close tomorrow, would not be reasonable. While there is no hard and fast rule as to what is “reasonable” (case-law dictates that will be deemed “reasonable” shall be determined on a case by case basis, depending upon the facts and details of the transaction, the past conduct of the parties, etc.), thirty-days’ notice is generally used. The period can be lengthened, or shortened, as circumstances require, but the Court would look to each individual transaction to see if the advance notice period given in the letter was objectively reasonable.

Second, the TOE Letter must expressly advise the party who receives it of what the consequence will be for failing to close on the chosen date. If it is a buyer receiving it, for example, the letter should state that they will lose their deposit, and that the seller shall retain the deposit as liquidated damages, and that they will also lose the opportunity to purchase the property. If it is a seller receiving the letter, for example, the letter would typically say that the buyer can sue to reclaim their deposit (and/or additional damages), or for “specific performance” of the contract.

Third, the TOE Letter must be given in good faith. The party receiving the letter must have no valid defenses to failing to close, and the sender should not send one if there is an issue that they know the receiving party cannot fix, merely to apply leverage, and cause a technical default. (For example, if you were aware the other party needed a week to be able to close, and you were to send a TOE Letter demanding a closing in six days). In another example, a seller who has an illegal condition/ alteration at the property, cannot force the purchaser to close, merely by serving a TOE letter, and attempting to leverage them to close, by attempting to put them in a position of having committed a pre-emptive default; in that case, the purchaser may or would have a legitimate defense, or reason not to close, under the contract, and the TOE Letter would ultimately be ruled to have no effect. There is case-law that generally provides that reasonable adjournments or good faith attempts at rescheduling an “on or about” closing date should occur before resorting to a TOE letter.

Fourth, on the chosen date, the party sending the TOE letter must be ready, willing and able to perform their part of the transaction also. The TOE designation becomes a double edged sword that can cut against either party. So the sending party must be assured they will be able to perform their obligations to close on the set date, lest the other party appear to close, and the party who sent the letter is not, and be held in default themselves. While not often used, contract riders, as opposed to TOE Letters, can make “Time of the Essence” as to one party only. This alleviates the obligation of one party to be “ready, willing and able” on a date certain, where failure to be so could cut against them. They will ultimately have to be “ready, willing and able” in order to default the other party, but, they alone have the power to adjourn if they are not, while the other party would be held to the date. Naturally, since this only protects one party, it is not too often agreed upon by both sides.

On the closing day, the party who sent the TOE Letter should have everything in place to close title, even if they are reasonably certain the other party may not appear. For a purchaser, this may mean having their lender/ lenders counsel present, or at least on stand-by, ready to appear if the other party does appear, ready to close. A title closer should also be present, and the funds to consummate the transaction also available and ready to disburse. For the seller, keys should be available to deliver, and a Deed prepared, ready to be executed, along with any other transfer tax documentation, or other necessary documents. Many attorneys will arrange to have a stenographer/court report appear at the TOE closing, to memorialize the identity of the participants, to show that all necessary parties are there (other than any defaulting parties who do not appear), and that everything necessary for the closing to occur is ready; sometimes even marking documents “for identification” by the court reporter, to accompany the transcript. This is not strictly required, however, it is useful if the matter results in litigation, as good evidence of the parties default in appearing, and that everything else was ready in order for the closing to occur.

If you have any questions about “Time of the Essence” closings, or if you have clients who find themselves in a pre-litigation scenario, and need assistance, please, do not hesitate to contact our offices. We are here to help!

Jeremy Panzella, Esq.
Partner
Email: jpanzella@mvpclaw.com