Don’t sign contract without financing contingency

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Lawyers start with boiler-plate contracts, and the terms that they add are intended to provide essential protections.

In this nascent world of restrictive credit standards, anyone buying a new home needs to expect the expected.

When it comes not only to getting mortgage approval but also to getting promised funds, buyers can count on roadblocks that could delay or even prevent settlement.

That is why it is essential for their attorneys to include appropriate financing contingency clauses in the contracts.  Those clauses allow buyers to have their deposits returned in the event that lenders don’t finally provide the money to close.

Considering that the usual deposit of 10 percent of the purchase price — $40,000 on just the $400,000 purchase of a studio apartment — is a substantial sum, contingency clauses are not to be taken lightly.

Notes Forest Hills lawyer Ryan J. Walsh, whose explanation I’ll paraphrase liberally below, there are three major contingencies that can protect a buyer:

Brokers face stiff competiton. From lawyers.

(Source: Library of Congress)

Some buyers and sellers may not realize that brokers aren’t alone.

State law allows lawyers to collect commissions — without having a real estate license — though they cannot employ other salespersons to work under them unless they do obtain a license.

However, lawyers may not automatically charge a commission.  They must have a signed agreement with whomever they are representing or an agreement with the listing broker.

At the same time, lawyers may not double dip.  It is a conflict of interest for a lawyer to act as both attorney and real estate broker in the same transaction.

Interestingly,

The High Road: Some lawyers shirk due diligence

Some lawyers work really hard, others take it easy. (Flickr photo by jcoterhals)

As in any profession, there are good apples and bad ones.

When it comes to real estate lawyers, the bad ones are more likely to be lazy than incompetent.

However, I have to say that the  challenge of practicing residential real estate law often is less demanding than, say, intellectual property or medical malpractice law.  (That’s not to say I don’t know some terrific real estate lawyers.)

My issue with the lazy lawyers whom I’ve encountered here in Manhattan is that they do not fully perform the due diligence required of them.  After all, they bear fiduciary duty to their clients, many of whom are committing to the biggest purchase of their lives.

What are some of the things that the lazy lawyers don’t do?

They don’t

Are lawyers kicking ’em while they’re down?

Flickr photo by Ed Schipul

Admittedly, homeowners in foreclosure face a Hobson’s choice.  Do they choose fight or flight?

In the case of a number of Florida homeowners, they are opting for fight.  At the same time, they are making what some would perceive as a pact with the devil: Lawyers who literally have them mortgage their future.

A front -page article in Sunday’s New York Times documents how lawyers who are hired by desperate homeowners lacking cash agree to represent them only if their compensation is guaranteed by a second mortgage.

What?

One expert in contingency fees allowed that the practice made him queasy.  It makes me queasy, too, close to nauseated.

The scheme sounds like exploitation.

At the same time,

Maybe, just maybe, Shakespeare had a point

The Supremes.

Okay, killing all the lawyers would a mistake, especially those in the photo.  But there are times when I’d like to savage some whose involvement in a transaction made my life difficult.

Such are the lawyers with little experience in real estate, no respect for real estate brokers, no commitment to hard work or some combination of those characteristics.

There is nothing like a closing. Thankfully.

The truth is I hate closings, which are as ritualized as a religious service.

They never start on time. A key individual always is late. The amount of paperwork is oppressive, and the time taken for lawyerly explanations and writing signatures drags as slowly as a dial-up connection.

Photo by Orin Zebest

What brings up this topic is the closing I attended yesterday. I always go to see a transaction through to its conclusion and provide whatever comfort I can to invariably anxious clients.

Along with the buyer, whom I was not representing, I arrived 10 minutes early. The two of us sat in a downtown law office’s reception room with only five seats for the nine of us and anyone else who had business with the firm.

The buyer and I chatted while the other participants straggled in, wet as they were from the wind-whipped snow.

Finally, we were admitted into a conference room and took seats.