Attention Home Buyers: Why You Need a Lawyer
Although using the services of an attorney can easily add several thousand dollars to the cost of a real estate transaction, it's often money well spent. Read on to find out how an attorney will help you close the deal and the pitfalls that may end up costing a lot of money.
While most individuals have the ability to negotiate face-to-face with another party, the terms of the deal must be properly memorialized in a contract for them to be legally binding. Attorneys can do that by not only negotiating on your behalf but also making sure that the contract adheres to all state laws as well as addresses any specific issues that might affect the future use of the property.
For example, in New Jersey, the law stipulates that the buyer and the seller have three days to review a real estate contract signed in conjunction with a realtor before it becomes legally binding. Some home buyers/sellers aren't aware of this. A lawyer will not only make the client aware of it, but the attorney will also review the contract for any legal glitches, make any necessary changes to it, and insert any contingencies that you might have. (For tips on finding a real estate agent, read Finding A Listing Agent.)
Another vital service that attorneys perform is called a title search. Title searches are completed by or through attorneys, and their purpose is to make sure that the property being sold is free of any encumbrances, such as liens or judgments. The outcome of the title search is extremely important because it reveals whether the seller has the legal right to sell the property in question. An attorney will be able to provide this service much faster, and often with less cost because real estate attorneys have working relationships with title search companies.
Suppose a title search reveals that the seller must first pay a lien or outstanding court judgment before his or her home can legally be sold. A lawyer will address this issue by suggesting that the seller sweetens the deal (for making the buyer wait) by granting a price reduction. The lawyer may also provide the seller with suggestions or sources for financing so that the seller can satisfy those claims. Attorneys will also be able to secure proofs that those judgments and/or liens have been satisfied. This is important if you as the new owner ever plan to obtain a mortgage or loan against the property value. (For related reading, see The Best Way To Borrow.)
When one or more parties are corporations, trusts or partnerships, the contract preparation and the ensuing negotiations are complex. An attorney understands these different types of business arrangements and their legal boundaries within your state's law. As such, the attorney will ensure that the contract is consistent with the law, but also that the terms of the deal in no way violate the partnership's, trust's or corporation's charter agreements.
Real estate deeds often need to be filed at the county and state level. An attorney will be able to do this quickly and efficiently. Also, if the transaction involves property where certain types of construction might not be allowed, an attorney will be able to navigate the maze of state regulations so that you may complete the transaction.
If the transaction revolves around commercial property, securing an attorney is even more important. The attorney will be able to cut through governmental red tape to obtain your tax identification number from the state, as well as establish your corporation or sole proprietorship as a valid business entity for state tax purposes. An attorney may also secure your actual business license through the municipality as well. (For more on commercial real estate, see Find Fortune In Commercial Real Estate and Defeasance Reduces Commercial Real Estate Fees.)
What Can Happen Without an Attorney?
Having an attorney represent your interests isn't a legal requirement. But without one, you increase your chances of being sued by the opposing party for failure to disclose certain information. That is because an attorney's job is to review the home inspection and make certain that all relevant facts about the property (as well as any judgments or defects) are made known to the other party.
If the opposing party is a corporation or a partnership and the transaction is improperly completed for any reason, such as not clearing title to the property, failing to disclose certain defects or violating a corporate charte r, the entity may sue you, and its partners may individually sue you as well. While having a lawyer will not insulate you entirely from such litigation, obtaining legal counsel will certainly mitigate your risk, as the attorney will be much more likely to secure a clear title and make the appropriate disclosures. (For related reading, see Litigation: Are Your Investments At Risk?)
Finally, without an attorney you run the risk of failing to file the appropriate documents at the state or the county level. The following is what can happen if certain documents aren't filed.
- If a deed is not properly transferred, it could cause a variety of income and/or estate taxes to be levied on the buyer and/or the seller.
- If building permits are not filed on wetlands, certain structures may have to be rebuilt, or owners may incur fines.
If the transaction is commercial in nature and the business is not properly registered at the state level, the company may not receive its taxpayer identification number. Should this happen, the business might be forced to close until it secures that information.
The Bottom Line
Having legal counsel makes good business sense because of the complexities that come with real estate. An experienced, competent real estate attorney can help to protect your interests and ensure that your real estate transaction adheres to the applicable rules of your state/municipality.