Do I Need an Attorney for my Real Estate Closing?
In many parts of the country it is uncommon to hire an attorney to represent you when buying or selling residential real estate (the Chicago area is one of the few places where it is customary to have an attorney). My opinion is that your real estate transaction is likely the single most financially significant event of your year (or decade) and the cost of an attorney to review that with you (in Chicago, the fees are usually $400-$600) will be nominal compared to the cost you could incur if there were any issues or mistakes made at your closing. So, in the interest of pulling back the curtain, here is a brief overview of what you can expect an attorney to do for you:
Reviewing the Contract
The first thing we do is review your real estate contract. We look to make sure that all the information is there that should be included. Most real estate contracts include an “Attorney Review” period where the attorneys for the buyer and seller can negotiate any changes to the contract they feel are necessary (with the exception of the purchase price). If there are any contingencies or unusual terms, we will go over that with the client to make sure they understand what the contract says and to see if they want anything changed. Once that is completed, the attorney’s job changes depending on whether they are representing a buyer or a seller.
When You’re a Buyer
Buyers need to be made aware of the different deadlines included in the contract. First, they usually have one week to have a home inspection done and to have the process started for securing a loan from their mortgage lender. If there is going to be a delay with either of those, the attorney would communicate that with the seller and get the deadlines extended. If there are any issues arising from the inspection that the buyer wants repaired or otherwise taken care of, the attorney would forward those requests and negotiate the response.
Once all issues with the inspection and loan are taken care of, we can schedule a closing. At the closing table, the attorney will be there and go over the tall stack of paperwork waiting for you. Most of the paperwork will be the documents sent over by your mortgage lender and they all need to be signed before your lender will release your mortgage funds. A lot of the forms are difficult to understand so it does help quite a bit to have an attorney there who has seen the form before and knows what to look for to make sure that the documents have been prepared correctly and to verify that the loan terms are what you were promised they would be (correct loan amount, interest rate, monthly payment, etc.).
After you have signed your mortgage documents, the attorney will then review the ‘title documents’ which are usually prepared by the title company and the seller’s attorney. These documents are the ones that will ensure you receive everything you are expecting and that you understand any limitations that may be a part of the property. If you are buying a detached residence or a townhouse, you should get a survey at closing that shows your property’s lot lines along with any easements, encroachments, and building lines. It is common to discover at the closing that the previous owners had a garage built over an easement or beyond a building line. If that is the case, there is the possibility that a utility company or your municipality will have that demolished at your expense. When discovered at closing, we can often request the seller provide you with additional title insurance that would cover the cost for demolition if that were to happen. Additionally, we will review the deed and title insurance policy to make sure that you are taking good title to your property in the manner that works best for you (joint tenants vs. tenants in common vs. tenants by the entirety).
When You’re a Seller
As you might expect, representing a seller is the inverse of representing a buyer. As a seller’s attorney, I will usually start by ordering a title insurance policy from one of the title insurance companies I am an agent for. Currently, I am an agent for four different companies and each one has their own benefits and weaknesses. Taking into consideration the location of your property, the type of property, and the purchase price, I will order from whichever company I think will provide the best price for the insurance and the best service for your type of transaction (clients often prefer a company with an office close to their property so they can avoid driving too far out of their way come closing day). We would also negotiate with the buyer’s attorney regarding any inspection issues, order a survey, and order any other type of inspection required by your contract.
When we receive the title report back, we contact the seller to let them know if there were any issues that were discovered (such as open mortgages that will need to be paid off at closing). Getting the title report back early can be critical if there are any unforeseen issues that need to be cleared – such as old mortgages that were refinanced but never had a release filed or where there is a deceased person on title and we need to obtain a death certificate.
For many sellers, we often prepare their title documents ahead of time and allow them to sign them before the closing so they can avoid sitting at the closing table for the hour or two it will take the buyers to review their loan documents. These documents would include the deed, bill of sale, title insurance documents, and other forms which we would prepare for you.
What Happens If I Don’t Use an Attorney?
If you still don’t think using an attorney would be necessary – you may be right! I admit that there are many closings where things go smoothly for everyone and the only service I provide is some extra explanation to the client of the meaning of some of the documents. In areas outside of Chicago, realtors and title companies independently provide the services that I’ve discussed above, so it must not be that big of a deal to not have an attorney, right? My response to that would be that, in most transactions, there are issues that are never caught or noticed by you but which an attorney would catch and have taken care of in the way that is most beneficial to you. One example of this is title fees – reviewing an invoice from your title company can be quite confusing as there is a laundry list of fees ranging from $1,800 to $3.00 and some of which are paid by the buyer and some by the seller. Some of these fees are mandated by law and others are required by the company and others are voluntary that the company assumes you want. An experienced real estate attorney knows which of those fees are not necessary for you and it is common that I am able to save a client more than the cost of my attorney’s fee just by having unneeded title fees removed. Additionally, there will be tax credits that you pay as a seller or receive as a buyer that need to be calculated as of the closing date. In some instances, there may be a discrepancy in how those credits should be calculated. When both sides have an attorney, they will negotiate that; but, if there is no attorney involved, the title company or realtor will calculate it however they decide (usually without even bringing the issue to the attention of either side).
Once you leave the closing table, the transaction is done. As a buyer, if you discover down the road that the seller never paid off a lien or that a shed was built on top of a municipal easement, you could be on the hook for those costs years after your closing. If you can’t locate the seller (or if the seller has passed away), you may have no recourse. If your attorney catches these issues at the table, though, it could be a simple fix that costs you nothing extra.