Dear Potential Seller:
In this letter I will address many of the issues that arise in sales of property in New Jersey.
My real estate practice is focused on the Mercer, Middlesex, and Somerset County areas, but I practice throughout the state. Before we proceed, let me state that my practice is not limited to real estate. If you need assistance in any other area of the law, especially involving negligence, municipal court, or employment law, do not hesitate to contact me. Let me now address real estate closings in New Jersey.
Table of Contents
- Dear Potential Seller:
- Selling A Property
- Attorney Review
- Deed and Related Documents
- Smoke & Fire, Certificate of Occupancy, Well & Permits
- Legal Fees
- Mortgage & Home Equity Payoff
- Tax Considerations
- Closing Date, Final Walkthrough & Closing Papers
Selling A Property
First a note about the Attorney Review process. Either attorney in a transaction may cancel the contracts or initiate changes to them provided that he or she sends a letter to the other side within three business days from the date that the last party signs and delivers the contracts. Once either attorney sends a letter under the Attorney Review asking for changes to the contracts, the Attorney Review does not end until both sides reach agreement. This means that the Attorney Review may end within the three days if agreement is reached within that time or may extend beyond those three days until such time as agreement is reached, if at all. Generally, the Buyers’ attorney sends the first Attorney Review letter.
Deed and Related Documents
If I have not already asked you for your deed, title policy, and survey or if you have not already provided them, please send them to my office now. Additionally, if either of you has been divorced, I need a copy of the divorce judgment to provide to the title company, even though that prior spouse was never on the Deed.
If I represented you when you purchased the property within the last 20 years, I probably have scanned copies of these documents. Besides the documents referenced above, the title company will need certain marital information (as it does with your purchase); the government will require certain information; and the other attorney will need mortgage payoff information. So that I may comply with these information requests and expedite the closing, if you ask us to represent you, I will send you a form for you to complete and provide to me with the information which I will need to process your file.
Smoke & Fire, Certificate of Occupancy, Well & Permits
In anticipation of the closing you must contact your municipality to obtain a Certification showing that you have complied with the State requirements for smoke and carbon monoxide detectors as well as fire extinguishers. Additionally, if the municipality in which your property is located also requires an inspection for a Certificate of Occupancy, you will need to make those arrangements. Therefore, if your property is located in a municipality such as East Windsor, Hamilton, Hopewell, Lawrenceville, Plainsboro, Trenton, or Washington, you will need to make arrangements for a Certificate of Occupancy inspection. On the other hand, if your property is located in a municipality such as Cranbury, East Brunswick, Montgomery, Princeton, South Brunswick, or West Windsor, you will not need to make such arrangements.
Also, if your house is serviced by a well, you should arrange for and obtain a well water certification (which will likely cost about $600). You should make arrangements to have these inspections performed about one month before the closing so that any needed corrections can be completed prior to closing, enough in advance to arrange any repairs if needed. Your real estate agent can help you to arrange these inspections/ certifications. Furthermore, please confirm whether you did any work to the property which required permits; if you did, advise as to what you did, when you did it, and whether you obtained permits for the work. If you did not obtain permits, you will be expected to obtain permits and approvals prior to the closing.
It is important to know that the closing date in the contract is not an absolute deadline. Assuming that the Buyer’s mortgage commitment comes on time, the closing is usually within ten (10) days of the date originally set, but it might not occur on that date.
My legal fee for a standard closing is $1,250 plus $150 costs. That fee may be increased to reflect use of excessive time (charged at $200 per hour) for non-standard situations, preparation of a Use and Occupancy Agreement or Power of Attorney or closing a second mortgage or for a sale of $1,300,000 and over (as my professional liability insurance is higher when the sale price is over that amount). We also charge separately, as referenced above, for photocopying, telephone toll charges, FAX, postage, messenger services, or other out-of-pocket expenses (usually $150.00). In addition to our legal fee and disbursements, it is your obligation to pay for other costs such as inspections, homeowners’ insurance, title company charges, lender charges, survey fees, recording fees, and other charges. If the closing does not occur, you might not be charged the full $1,250.00, but you will be charged a legal fee based upon the time we spent on your behalf. Also be advised that current practice is that Sellers and their attorneys do not appear at the actual closing.
Mortgage & Home Equity Payoff
Next, the mortgage pay-off frequently surprises people because they forget that mortgage payments cover the month interest for the month prior to the closing, not the month of closing; and interest continues to accrue until the lender is in receipt of the pay-off. This interest is in addition to the principal balance.
Also, any home equity or bridge loans must be paid off at closing (please note that both home equity loans and bridge loans are mortgages, although most people do not realize it). Please realize that most mortgage payments are not posted by your lender until about ten (10) days after the payment is mailed by you; and most attorneys will receive the pay-off letter from your lender about a week before closing. Also, a home equity loan requires a “freeze” or “block” for any home equity payoffs. This means that unless you can make your mortgage payment to your lender at least ten (10) days before the closing, you will probably not get your “overpayment” returned to you until sometime after the closing. If you have any questions regarding making a payment, call me.
There are two potential tax consequences if the property has not been your principal residence (especially if the property was rented out).
First, there is a Real Estate Transfer Fee, which is the obligation of the Seller and is a type of sales tax. Currently this fee is calculated on a multi-tier schedule: approximately $1,000 for the first $200,000.00 and roughly $11 per $1000.00 thereafter (on a sliding scale). Please advise me if you are 62 years old or older and living at the property, as there is a reduced rate for seniors.
Second, if you have not lived in the property as your principal residence for at least 2 of the last 5 years or you will not be a resident of New Jersey next year and the property was not your principal residence for at least 2 of the last 5 years, then the closing agent will be obligated to deduct and send a tax withholding to the State of New Jersey in the amount of 2% of the gross sales price of the property (which will be applied to any capital gains owed to New Jersey, with any excess returned to you after your tax return is filed with New Jersey). Second, there might be a federal capital gain issue subsequent to the closing if the property was not your principal residence for at least 2 of the last 5 years regardless of whether you will remain a resident of New Jersey after the closing, although no federal withholding will be taken at the time of closing. Call me if these might be issues.
Closing Date, Final Walkthrough & Closing Papers
Although I referenced it above, I repeat that it is important to know that the closing date in the contract is not an absolute deadline. Assuming that the Buyer’s mortgage commitment comes on time, the closing is usually within ten (10) days of the date originally set, but it might not occur on that date.
Additionally, please note that the buyers generally expect to conduct their final “walkthrough” inspection at least two (2) hours prior to the scheduled closing. It is expected that the property will be vacant and broom cleaned prior to the walk-through and the closing. You must schedule your movers accordingly. Please advise me if you expect any problems in complying with this timing.
As Sellers and I are no longer invited to attend the closing, I will prepare from the title work I receive from the Buyers’ title company and from a from which I will send you. I will then email you the proposed Deed, Affidavit of Title, IRS form, and a Power of Attorney prior to the closing for you to print out, sign, and overnight back to me the hard copies prior to the closing for me to send to the closing. Be advised that a few of those documents will need to be notarized prior to your sending them back to me. Also, advise us as to how we should get the proceeds to you after the closing.
Feel free to call me with any questions which you have about sale of property. If you would like information regarding my practice, you may look at www.barsonlaw.com. Although my office is in Princeton, NJ, I assist clients in Greater Princeton Area and Central New Jersey.
Very truly yours,
Ray J. Barson, Esq