In light of the CLE that Hallmark Abstract Service sponsored this weekend titled ‘Uncovering the Landmines Buried Deep in the New York Residential Real Estate Contract‘ that was hosted by attorney Vincent J. Gallo, we offer the article below authored by attorney Michele Cea of the firm Cea Legal, P.C. titled ‘The Attorney’s Role in New York Real Estate Transactions’.
There are some definite synergies between the two titles!
The Attorney’s Role in New York Real Estate Transactions – Michele Cea
New York City is the capital for residential real estate transactions in the United States. Most transactions in New York City involve one of two forms of home ownership:
A buyer purchasing a condo unit owns a piece of real property. Each unit receives a tax bill from New York City, while common charges are paid to the condominium to cover the building’s operating costs. The condo purchase is arguably the best form of ownership in terms of flexibility: A) The application with the Condo Board is quite straightforward; B) Financial institutions grant mortgages relatively easily; C) Subletting is typically unrestricted (this is why buy-to-rent investors consider almost exclusively condo units); D) Condo units are generally easiest to sell.
A buyer purchasing in a co-op building is buying shares of the corporation owning the building, not an actual piece of real property. The building receives a tax bill from the city and each co-op shareholder pays maintenance fees that include property taxes, common area upkeep, and the building’s underlying mortgage, among others. This form of ownership is less attractive than condo because the co-op board often imposes significant restrictions on shareholders, such as on subletting or making alterations to the unit. Also, the purchase application is quite burdensome. To offset these downsides, co-op units are usually more affordable than condo-units.
Attorneys of the seller and of the purchaser play crucial roles in the real estate transaction. Once the parties reach a sale agreement, the real estate brokers summarize the essential terms in the deal sheet and entrust the attorneys with the continuation of the process.
The Purchaser’s attorney has the duty to uncover existing or potential issues. A thorough due diligence includes reviewing many items, including the Offering Plan, existing violations and liens, the minutes of the last three years’ board meetings, and the amounts of common charges/maintenance fees, property taxes and any assessments. Other duties include verifying, with the help of an accountant, if the building is financially sound, and working with an architect to ensure that the actual square footage is consistent with the listing information.
The Seller’s attorney prepares the first draft of the contract of sale, while the purchaser’s attorney proposes edits and comments. Some of the most heavily negotiated clauses are the down payment percentage, the mortgage contingency, and warranties and representations in connection with the condition of the property. Upon signing the contract, the purchaser deposits the down payment into the seller’s attorney’s escrow account.
Between the execution of the contract and the closing date, the purchaser hires a title company to investigate the information concerning the title to the property (in the case of a condo unit) or to run a lien search (for a coop unit).
The Closing is scheduled when all the required documents are produced: waiver of the right of first refusal from the condo board, approval from the lender, surveys, payoff statements, and certificate of occupancy, to name a few.
At closing, the attorneys review and finalize all the documents: the contract of sale with its riders, amendments and ancillary agreements, the deed, the affidavit, and the escrow agreement, among others. Each transaction requires these specific documents, and sometimes more. The purchaser tenders the remainder of the purchase price, while the seller delivers the keys and any other items or documents related to the property. The title company issues insurance on the property and prepares the transfer tax forms.
Typically, the New York State transfer tax, the New York City transfer tax, and the Broker’s fees are paid by the seller, while the Mansion Tax (if any) is covered by the Purchaser. However, the parties may negotiate different arrangements of these costs.
The New York State transfer tax is charged at the rate of $2 for each $500 of consideration, plus an additional $1.25 for each $500 of consideration for properties with a sale price of $3,000,000 or more.
The New York City transfer tax is 1% of the purchase price when the latter is $500,000 or less, or 1.425% of the purchase price when the latter is $500,000 or more.
The Mansion Tax is applied to any unit sold for 1 million or more, and the percent of tax is calculated as follows:
1% if the purchase price is between $1,000,000 and $1,999,999
1.25% if the purchase price is between $2,000,000 and $2,999,999
1.5% if the purchase price is between $3,000,000 and $4,999,999
2.25% if the purchase price is between $5,000,000 and $9,999,999
3.25% if the purchase price is between $10,000,000 and $14,999,999
3.50% if the purchase price is between $15,000,000 and $19,999,999
3.75% if the purchase price is between $20,000,000 and $24,999,999
3.90% if the purchase price is over $25,000,000.
Michele Cea, CEA Legal, P.C.
Michele Cea is a founding member of the firm. Mr. Cea graduated from Catholic University School of Law in Milan, Italy (J.D., 2009, with honors), and Fordham University School of Law in New York (LL.M., 2011, Cum Laude).
Mr. Cea founded his own practice focused on representing foreign nationals and companies operating in the United States. He has extensive experience with international corporate matters, real estate transactions and non-immigrant visa petitions, such as extraordinary ability and investor visas.