Representing First-Time Home Buyers Through CEDLP

Community Economic Development Law Project

August 12, 2010

Justin Winerman and Brad Wilson

Initial Matters When you first receive the case file...

Introduce yourself to the client and discuss your role Identify the relevant parties, introduce yourself, and

get contact info: Seller Seller’s attorney Brokers Buyer’s primary lender Buyer’s secondary lenders (e.g., funding agencies) Buyer’s counselor

Draft initial correspondence with seller’s attorney Ensure that you have a legible copy of the contract Verify names – spelling, full legal names – and marital

status of client Check for time-sensitive deadlines

Relevant Parties

Closer

Seller

Title Company

CHACounselor

(Usually NHS)

Buyer’sBroker

GovernmentAgencies

(e.g., IHDA)

Seller’sAttorney

Seller’sBroker

Lender

BUYER

Start a contact list early to keep everyone up-to-date and to determine who you can approach with questions at each agency

The Engagement Letter

Sets out firm policy Sets scope of the

engagement and its termination point Limited scope

“As described to us, the Engagement involves solely reviewing the contract for the purchase of the property and assisting with the closing of the transaction.”

Attorney Review Period Extension You may receive the case near the end of the period specified in the contract for attorney

review Choose a period long enough that you will have time to review and discuss the relevant

provisions with the Seller’s counsel Budget time for communication delays

Further extensions are common If inspection is complete, roll in requests for repairs Ensure that language is used to avoid “counteroffer” problems; i.e., “alteration” Example language from opening letter:

Reviewing the Contract Make sure the contract is complete and readable

Usually fully-negotiated, but not always Ensure that the CHA Rider is attached

Must be signed by both parties Look for attached disclosures and warranties

Real Property Disclosure Lead Paint Disclosure

Review all sides, all attachments Ensure earnest money has been deposited with

escrowee Buyer must take possession at closing

Other Documents to Review With Contract Condos

Condo declaration/bylaws Review with client, who as first-time homebuyers

may not be familiar with these types of documents

Homeowner association New Constructions

Often-Negotiated Terms:

Negotiate for: Better tax proration – at

least 110% for Cook County

Lower maximum rate on mortgage (so buyer can get out of deal if they can only get a high rate)

Lower down payment in mortgage contingency

Location of closing – in the Loop

Title agency – pricing

Delete: Provisions that allow Seller

to obtain mortgage for Buyer

Any provisions contemplating buyer’s non-possession at closing (post-closing rent, escrow, etc)

Setting a Timeline

Pull the relevant dates from the contract Acceptance date of contract

Critical Date Seller accepts offer from Buyer Other deadlines measured from this point

Financing/mortgage contingency date Expiration of attorney review period Expiration of inspection period Closing date

Be prepared to extend Tentative until ALL parties give go-ahead

Inspections

Two inspections CHA

Repairs MUST be made

Independent Facilitated through Buyer’s broker or counselor Buyer can negotiate additional repairs, but cannot

spend more than $1,500 to repair before closing Safety concerns must be addressed

Sample Inspections – CHA

Sample Inspections – Independent

Appraisal

Required in the CHA rider

May result in modification of purchase price if appraisal is too low

Financing Buyer will have at least two sources of financing:

Primary Lender Marquette Harris PNC Mortgage

Secondary Lender(s) IHDA (grant administered through LUCHA or Spanish

Coalition of Housing) ADDI (grant administered through City of Chicago Dept. of

Housing) 1% or 3% of the purchase price must come from

client’s personal funds Lenders are generally aware of this

Coordination with all parties is important

Title Commitment Gives history of property

Legal title holder Any mortgages, liens, easements, encumbrances,

etc. Status of taxes

Obtain as soon as possible Make sure it’s signed Verify insured amounts match loan amounts

from agencies Important: failure to have correct amounts can result

in delay of closing If they don’t, you usually can call title co. directly

to have changed

Affidavit of Title

Deed

Review prior to closing Things to note:

General accuracy (names, property, tenancy etc.) Make sure person selling property (i.e., the “Grantor”) on

deed is same person on title commitment Can only convey what you own

Tenancies Joint Tenancy Tenancy in Common Tenancy by the Entirety

Survey

Try to obtain a copy before closing If you don’t, not a problem; review for general

accuracy on closing date Review legal description of property make sure it

matches that in the title commitment Review for any encroachments, building line

violations No survey for condos

If Condo get declaration and bylaws

Bill of Sale (for personal property, if any)

Loan Documents

Review documentsMortgage – security agreementPromissory Note – loan Recapture Agreement

Verify Terms Interest rateAmount of mortgageReview recapture provisions in all documents

Transfer Declarations

Mostly Seller’s obligation – review for general accuracy at closingState of IllinoisCook CountyCity of Chicago

Before Closing

Coordinate with all agencies Paperwork needed – get checklists early

E.g. ADDI needs title commitment, wiring instructions, closing request form Wiring instructions for the title company Prepare list of contact information for each agency at the beginning Confirm that all grants are funded and will be there at time of closing If possible, confirm with all agencies a week before closing

Final Walk-through During day Check that all repairs have been made Broom-clean condition No need to attend – Buyer can go with broker Buyer should inform you ASAP of any problems

Give notice to client’s current landlord and agree on times for showing in writing

Before Closing Inform your client what documents/items he or she will need to

bring: Certified Check

Make it payable to them Picture ID

Issued by Gov’t agency E.g. passport, driver’s license

Checkbook Original Insurance Policy Voided Check

To set up electronic debit payments Proof that Buyer has $1,000 in separate savings account

For future home repairs, if needed Remind client of time and place of closing Explain general idea of what documents will be involved – granting

documents, loan documents, tax documents – so clients are not surprised when they see the stack at the closing

At Closing Explain charges on Loan Settlement Statement and RESPA

Settlement Charges Title Company fee Junk fees – e.g. Yield Spread Premium Cash From Borrower – the “bottom line”

Explain forms – mortgage, grants, deed, escrow account for taxes, etc. Residency requirements/recapture provisions

Explain real estate taxes Twice a year, in arrears

Bring your cell phone and contact list Make sure CEDLP gets fee!

Currently $250 No money can go back to client if overage – call counselor or CHA

for tips Flood insurance, CEDLP fee, purchase home warranty

After Closing

For client’s records: Forward title insurance policy Forward recorded documents Forward RESPA

Refer clients with maintenance or other ownership issues back to counselors

Termination letter

Questions or Comments