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Representing First-Time Home Buyers Through CEDLP. Community Economic Development Law Project August 12, 2010 Justin Winerman and Brad Wilson. Initial Matters. When you first receive the case file... Introduce yourself to the client and discuss your role
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Representing First-Time Home Buyers Through CEDLP Community Economic Development Law Project August 12, 2010 Justin Winerman and Brad Wilson
Initial Matters • When you first receive the case file... • Introduce yourself to the client and discuss your role • Identify the relevant parties, introduce yourself, and get contact info: • Seller • Seller’s attorney • Brokers • Buyer’s primary lender • Buyer’s secondary lenders (e.g., funding agencies) • Buyer’s counselor • Draft initial correspondence with seller’s attorney • Ensure that you have a legible copy of the contract • Verify names – spelling, full legal names – and marital status of client • Check for time-sensitive deadlines
Relevant Parties Start a contact list early to keep everyone up-to-date and to determine who you can approach with questions at each agency
Sets out firm policy Sets scope of the engagement and its termination point Limited scope “As described to us, the Engagement involves solely reviewing the contract for the purchase of the property and assisting with the closing of the transaction.” The Engagement Letter
Attorney Review Period Extension • You may receive the case near the end of the period specified in the contract for attorney review • Choose a period long enough that you will have time to review and discuss the relevant provisions with the Seller’s counsel • Budget time for communication delays • Further extensions are common • If inspection is complete, roll in requests for repairs • Ensure that language is used to avoid “counteroffer” problems; i.e., “alteration” • Example language from opening letter:
Reviewing the Contract • Make sure the contract is complete and readable • Usually fully-negotiated, but not always • Ensure that the CHA Rider is attached • Must be signed by both parties • Look for attached disclosures and warranties • Real Property Disclosure • Lead Paint Disclosure • Review all sides, all attachments • Ensure earnest money has been deposited with escrowee • Buyer must take possession at closing
Other Documents to Review With Contract • Condos • Condo declaration/bylaws • Review with client, who as first-time homebuyers may not be familiar with these types of documents • Homeowner association • New Constructions
Negotiate for: Better tax proration – at least 110% for Cook County Lower maximum rate on mortgage (so buyer can get out of deal if they can only get a high rate) Lower down payment in mortgage contingency Location of closing – in the Loop Title agency – pricing Delete: Provisions that allow Seller to obtain mortgage for Buyer Any provisions contemplating buyer’s non-possession at closing (post-closing rent, escrow, etc) Often-Negotiated Terms:
Setting a Timeline • Pull the relevant dates from the contract • Acceptance date of contract • Critical • Date Seller accepts offer from Buyer • Other deadlines measured from this point • Financing/mortgage contingency date • Expiration of attorney review period • Expiration of inspection period • Closing date • Be prepared to extend • Tentative until ALL parties give go-ahead
Inspections • Two inspections • CHA • Repairs MUST be made • Independent • Facilitated through Buyer’s broker or counselor • Buyer can negotiate additional repairs, but cannot spend more than $1,500 to repair before closing • Safety concerns must be addressed
Appraisal • Required in the CHA rider • May result in modification of purchase price if appraisal is too low
Financing • Buyer will have at least two sources of financing: • Primary Lender • Marquette • Harris • PNC Mortgage • Secondary Lender(s) • IHDA (grant administered through LUCHA or Spanish Coalition of Housing) • ADDI (grant administered through City of Chicago Dept. of Housing) • 1% or 3% of the purchase price must come from client’s personal funds • Lenders are generally aware of this • Coordination with all parties is important
Title Commitment • Gives history of property • Legal title holder • Any mortgages, liens, easements, encumbrances, etc. • Status of taxes • Obtain as soon as possible • Make sure it’s signed • Verify insured amounts match loan amounts from agencies • Important: failure to have correct amounts can result in delay of closing • If they don’t, you usually can call title co. directly to have changed
Deed • Review prior to closing • Things to note: • General accuracy (names, property, tenancy etc.) • Make sure person selling property (i.e., the “Grantor”) on deed is same person on title commitment • Can only convey what you own • Tenancies • Joint Tenancy • Tenancy in Common • Tenancy by the Entirety
Survey • Try to obtain a copy before closing • If you don’t, not a problem; review for general accuracy on closing date • Review legal description of property make sure it matches that in the title commitment • Review for any encroachments, building line violations • No survey for condos • If Condo get declaration and bylaws
Loan Documents • Review documents • Mortgage – security agreement • Promissory Note – loan • Recapture Agreement • Verify Terms • Interest rate • Amount of mortgage • Review recapture provisions in all documents
Transfer Declarations • Mostly Seller’s obligation – review for general accuracy at closing • State of Illinois • Cook County • City of Chicago
Before Closing • Coordinate with all agencies • Paperwork needed – get checklists early • E.g. ADDI needs title commitment, wiring instructions, closing request form • Wiring instructions for the title company • Prepare list of contact information for each agency at the beginning • Confirm that all grants are funded and will be there at time of closing • If possible, confirm with all agencies a week before closing • Final Walk-through • During day • Check that all repairs have been made • Broom-clean condition • No need to attend – Buyer can go with broker • Buyer should inform you ASAP of any problems • Give notice to client’s current landlord and agree on times for showing in writing
Before Closing • Inform your client what documents/items he or she will need to bring: • Certified Check • Make it payable to them • Picture ID • Issued by Gov’t agency • E.g. passport, driver’s license • Checkbook • Original Insurance Policy • Voided Check • To set up electronic debit payments • Proof that Buyer has $1,000 in separate savings account • For future home repairs, if needed • Remind client of time and place of closing • Explain general idea of what documents will be involved – granting documents, loan documents, tax documents – so clients are not surprised when they see the stack at the closing
At Closing • Explain charges on Loan Settlement Statement and RESPA • Settlement Charges • Title Company fee • Junk fees – e.g. Yield Spread Premium • Cash From Borrower – the “bottom line” • Explain forms – mortgage, grants, deed, escrow account for taxes, etc. • Residency requirements/recapture provisions • Explain real estate taxes • Twice a year, in arrears • Bring your cell phone and contact list • Make sure CEDLP gets fee! • Currently $250 • No money can go back to client if overage – call counselor or CHA for tips • Flood insurance, CEDLP fee, purchase home warranty
After Closing • For client’s records: • Forward title insurance policy • Forward recorded documents • Forward RESPA • Refer clients with maintenance or other ownership issues back to counselors • Termination letter