Streamlining Real Estate Closings in New York State
Jul 06, 2023 brooklyn,Brooklyn Buyers,Brooklyn Buyers Agent,brooklyn real estate,brooklyn realty,brooklyn sellers,Brooklyn Sellers Agent,realty collective
Real estate transactions in certain parts of New York State often encounter hurdles that impede smooth closings. Unlike many other states where real estate agents take the lead in handling transactions, negotiations in New York are primarily managed by attorneys who prepare contracts. This difference in approach often elongates the closing process, which typically lasts 60 to 90 days but can extend beyond 120 days due to unexpected issues.
Delays in New York Real Estate Closings
Delays can arise from extensive negotiations over specific terms, the non-use of standardized contracts, and attorneys’ inclusion of comprehensive riders to safeguard their clients’ interests. Thus, it becomes crucial for all parties involved, including real estate agents, attorneys, and mortgage representatives, to comprehend and explain the essential elements of closing transactions, particularly the “Closing Date” and the customary time frames for real estate deals in New York State.
Customary Time Frames and Process
The standard process takes attorneys approximately seven to ten days to prepare and finalize contracts for signature. Once the contract is signed, the buyer usually takes 30 to 45 days to obtain a mortgage commitment. After the issuance of a mortgage commitment, the lender typically requires another 20 to 30 days to grant a “clear to close” status, provided the appraisal contingency is met. Additionally, new regulations from the Consumer Finance Protection Bureau stipulate that the closing date must be scheduled at least three business days after the borrower has received, reviewed, and approved the Closing Disclosure or “CD.” Consequently, if everything progresses smoothly, a closing can usually occur within 60 to 75 days after the contract’s execution. However, not all transactions proceed as planned.
Disputes and Litigation
In cases where delays or defaults occur, disputes or litigation may ensue. Before initiating legal action, attorneys may send a “Time of the Essence Letter” (TOE Letter) to the other party if they fail to close within a “reasonable” time after the specified closing date. Although real estate agents are typically not involved in sending TOE Letters, understanding the parties’ preferences when negotiating the closing date can help prevent issues later.
Understanding the “Closing Date” and Managing Expectations
Unlike many other states, the “Closing Date” specified in New York contracts, especially when preceded by the words “on or about,” is not fixed. Closings rarely happen on the exact date mentioned. Thus, both real estate agents and attorneys must grasp the fluid nature of the “on or about” standard. Properly managing client expectations alleviates stress during the already taxing process. For example, buyers in rental situations should be aware that they may need to extend their lease or make alternative arrangements. Similarly, sellers should know they might have to vacate their property before they are ready if they have unreasonably delayed beyond the closing date.
Legal Requirements for Time of the Essence Letters
In a recent court decision (11-01 36 Avenue, LLC v. Quamar), the New York Supreme Court analyzed TOE Letters and the requirements for sending them. The court highlighted that a TOE Letter must:
- Clearly and unequivocally state that time is of the essence.
- Allow a reasonable time for the other party to perform their obligations.
- Inform the other party that a failure to perform by the designated date will be considered a default under the contract’s terms.
Contrary to popular belief, a “reasonable time” or the “on or about” standard does not always mean 30 days. The determination of a reasonable time depends on the circumstances of each case. With a clear understanding of the customary time frames, effective communication between all parties, and proper management of client expectations, real estate agents and attorneys can work together to streamline the closing process and minimize delays in New York State.