Closings, deeds and restrictive agreements: does the buyer know what he is buying?
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Closings, deeds and restrictive agreements: does the buyer know what he is buying?

Disclaimer: This article is not intended to be legal advice. Legal advice depends on the particular circumstances of each person. If you have a related problem, you should consult with your attorney practicing law in his state regarding his particular circumstance. This article is for informational purposes only.

The title agent led us into a large and beautiful conference room. My client sat down first. I sat in the chair directly across from her. After flashing me a nervous smile, he placed his arms on the cold, shiny conference room table and clasped his hands together, lacing their fingers together.

She was clearly nervous…

And I should have been nervous; this was the first time she had bought real estate. Plus, she was buying this house during the real estate boom, when the real estate market was at its craziest. More importantly, you were buying this home directly from the builder, and you agreed to allow your builder’s mortgage company to finance the home purchase and your builder’s title company to close the real estate deal, which usually complicates things for unsuspecting home buyers.

Unfortunately, I did not represent her at the time she signed her real estate contract as she hired me just a few days before closing. (For the record, I generally advise most buyers to get their financing and title/closing agent services from a party unrelated to the builder.)

The closing agent brought a stack of documents for my client’s signature. He put the documents in front of me and then left the room, closing the door behind him. Of course, I was there to review each document for my client to advise her before he signed any more documents. Most of the documents were fine.

However, there was one document that caused me serious concern: The Deed.

“Did someone tell you that if you sold your house within the next 4 years, you would have to pay the builder a penalty of 15% of the sale price?” I asked him after reviewing his handwriting. I was surprised to see such a provision in the deed as I did not remember seeing such a requirement in the real estate contract a few days before.

“NO!!!!!!” she responded quickly. She was obviously surprised by my question.

“Are you okay with paying the builder a 15% penalty if you sell the house within 4 years?” I asked, looking up from the writing.

“NO!!!!!!!!!”

“Therefore, I advise you not to sign any of these closing documents and to back out of this closing unless the builder agrees to remove these provisions from your deed…”

I called the title agent to the room and informed him that the closing would not take place unless the builder agreed to change the deed. The title agent went back to the office. He promptly returned with a revised script.

From then on, we closed the real estate deal.

THE PROBLEM

Do you understand your work? What about your restrictive covenants? Do you even know what restrictive covenants are? Do you know to require to see all your closing documents before closing?

Would you believe that most buyers don’t? Would you believe that attorneys who don’t practice real estate don’t?

As a result, just like the seller in the scenario above, sellers can easily surprise potential buyers right at the closing table. This obviously puts sellers at a substantial advantage.

What’s worse is that even if the buyer gets the surprise, the seller can threaten to take the buyer’s deposit if the closing doesn’t happen that day. This puts the buyer in an obvious dilemma. Since real estate deposits tend to be substantial, most buyers feel they have no choice but to sign closing documents.

THE SOLUTION

Buyers should try to protect their interests in their closings:

  1. Consider asking your closing agent to provide you with all of your documents at least 48 hours before closing.
  2. Consider reading all your documents. If you don’t understand something, consider asking an appropriate person to explain it to you.
  3. If you see anything suspicious in your closing documents, consider consulting with an attorney in your jurisdiction about the matter.
  4. If trying to understand the closing process, documents and/or concepts overwhelms you, consider hiring a real estate attorney to represent you in the transaction.
  5. In many jurisdictions, hiring a real estate attorney to represent you solely in the closing process typically costs less than $1,500.00, which is less than a month’s mortgage payment for many people. This is a small investment to protect the investment you are making in your new home.

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