Once you choose an apartment and have reached a verbal agreement on the purchase price, the true purchase process begins. In the State of New York, the sale of a property goes through several phases. The signing of Contract of Sale (literally, the contract of sale) is the first of these.
The purpose of the Contract of Sale, although different in kind, is in some ways comparable to a compromise in Italy. In practice in the Contract of Sale, the seller undertakes to transfer the property to the buyer and the latter undertakes to pay the agreed price to the seller. Please note, only once the Contract of Sale is signed by both the seller and buyer are parties legally bound to each other.
Before signing this document the parties may terminate, without risking any consequences, any prior promise made or agreement reached. For this reason, if the buyer does not want to take any chances of seeing the deal fade, it is important not to spend too much time between reaching an agreement with the counterparty and the signing of the Contract of Sale–especially if you have just agreed to an advantageous price for the property.
The Contract of Sale is a detailed account of all the aspects of the purchase/sale: cost, timing, method of payment, guarantees given to the purchaser and any probable deal making/deal breaking conditions such as the ability to obtain a mortgage. At this point, it is normal and highly advisable to be assisted by a trustworthy attorney. Besides negotiating the terms of the Contract of Sale prepared by the seller’s attorney, the buyer’s attorney will also verify the authenticity of the documentation produced by the seller. Specifically, he/she will study the Offering Plan (or else, the official document describing the property from both a legal and technical/architectural standpoint), originally filed with the Attorney General (a senior government official with warranty and certification powers, a kind of notary public) by the general contractor, which contains documents proving the habitability of the property, its subdivisions and its actual size. The attorney will also verify the exact amount of the Common Charges (condominium expenses) and Real Estate Taxes (property taxes).
The signing of the Contract of Sale is usually accompanied the buyer’s deposit of 10% of the agreed upon purchase price. The attorney has an additional and important role in protecting the buyer’s investment. This 10% deposit is not given to the seller but is placed in an Escrow Account (Trust Account) managed by his lawyer who will turn over this 10% amount to the seller only when the deed of change of ownership is produced—that is, only if the purchase has gone smoothly. In practice, the placement of money in an escrow account managed by an attorney enables the buyer to quickly and safely recover the sum paid if the sale fails to take place because of the seller.
The correct use of the funds in the trust account is guaranteed and supervised by the respected New York City Bar Association (the Bar of New York). Although embezzlement cases are very rare (a lawyer who does not behave properly with a client’s money will lose his/her license to practice and risk severe criminal penalties), always hire a lawyer who has a good reputation and is used to working in Manhattan. (We do not advise hiring less expensive lawyers from Long Island or Brooklyn. They do not have the reputation of their colleagues in Manhattan.) We suggest that our clients ask their banks for referrals to reliable lawyers. We are also willing to recommend professionals we have worked with over the years, many of whom are fluent in Italian.
Once he/she signs the Contract of Sale, the seller cannot turn back. He/she is legally obligated to transfer ownership of the property to the buyer. For his/her part, the buyer may lose his/her deposit if he/she fails to come up with the the balance of the purchase price within the time agreed in the Contract of Sale.
Unless you are buying directly from the contractor, the next phase upon signing the Contract of Sale is the buyer’s submission of an Application to the condominium. With the Application, the buyer asks for a waiver (Waiver) to the right of first refusal (Right of First Refusal) on the apartment he/she wants to buy. In fact, all buildings have a legal right of first refusal on sales within the condominium. To grant the waiver of that right, aspiring condominium owners are asked to complete a questionnaire (which we will assist you in completing in the easiest and fastest way). They are also asked to produce certain documents containing personal information such as tax returns and references from neighbors, friends or relatives (it seems incredible but this is how it is). This rule exists to prevent the arrival of a new neighbor, who might be undesirable, to purchase an apartment in one’s building. This should be no cause for concern, however because the right of first refusal, although it exists in theory, is never exercised.
Although it is simply an annoying formality, the information required to obtain the Waiver should be provided with diligence otherwise one cannot proceed to the transfer of ownership. The aspiring buyer’s documentation is presented to the condominium’s Board which meets to vote on waiving the right of first refusal. This phase, which can take some time (especially in summer) can go from two to five weeks.
Many of the documents required for the application can also be useful if the buyer intends to obtain a mortgage from a bank to finance the purchase of the property.
Before completing the purchase process, the buyer will have to verify the correctness of the title and the absence of any claims on it. The full ownership of the insurance product sold and the absence of mortgages, taxes or other claims is obtained by purchasing Title Insurance in the United States.
Title Insurance is prepared by a leading insurance company. It guarantees the buyer the full amount of the purchase price against the risk of eviction. With this system, the buyer gets a double guarantee: On the one hand, the Title Insurance certifies full ownership of the property on the part of the seller and the freedom of the same debt, mortgages or other encumbrances that may last even after the purchase; on the other hand, Title Insurance operates as a standard insurance contract by which the issuing company is obligated to pay the buyer if irregularities not uncovered in their search should emerge in the future.
The cost of Title Insurance is regulated by individual states and in Upstate New York varies between 0.50% and 0.75% of the purchase price (and is proportionately more expensive for buildings of lesser value). Again, it is your attorney’s responsibility to obtain Title Insurance for you.
Before completing the purchase, you should decide whether you wish to purchase the property in your own name, through a company or in the name of a third party. In general, the alternatives are:
i) Purchase in your own name or in a Joint Tenancy with or without an accretion to a Right of Survivorship )
ii) Purchase of bare property and separate from use (Life Estate)
iii) Purchase through an LLC (Limited Liability Company)
iv) Purchase through a Corporation
v) Purchase through a property fund or Real Estate Investment Trusts (REITs)
This is an important choice which involves balancing interests, taxes and administrative costs. It is absolutely necessary to obtain legal advice from one’s lawyer and/or American accountant on this.
Vivaldi Real Estate provides its area-registered clients with a series of confidential documents which, without claiming to substitute for legal or tax advice, can help the buyer get an idea of the alternatives available to him/her.
The last step in buying a property is the Transfer of the Deed (transfer of title) from the seller to the buyer. Once the Waiver is released and the research done by theTitle Insurance does not reveal any irregularities or facts stated by the seller, the buyer will transfer the remaining 90% of the purchase price to the trust account managed by his/her lawyer. At this point, the lawyer will go to the seller’s lawyer’s office along with the representative from the company issuing the Title Insurance and using the funds transferred by the buyer, will pay the balance due. In exchange for the agreed upon price, the attorney receives the title of ownership (Deed) that the insurance company, in coordination with the lawyer, will record with the local authorities thus ensuring the buyer full ownership of the property.
It is not necessary for the buyer to be present at the closing. He/she may delegate the completion of this task to his/her attorney. Powers of Attorney can be issued and sent from most foreign countries to New York using the services of notaries at U.S. consulates abroad.