Conducting proper due diligence is a critical step in the New York City real estate buying process. It comes as the final step before the signing of the contract of sale and typically lasts 5-7 business days. Your buyer’s agent has advised you on the type of property, layout, and even some basic flaws. We also strongly recommend that you have a home inspection, during the due diligence process.
You may feel good about the purchase at this point. However, there is a final due diligence round, which your lawyer conducts. You should know what he/she is looking for at this stage of the process.
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Your Real Estate Attorney protects you with due diligence
The first thing to know is that your lawyer is on your side. We have spoken about an exclusive buyer’s agent fiduciary duty, but the attorney you hire is also looking out for your best interests.
He or she is scrutinizing the deal for legal and financial risks. There is a lot of work to do, particularly on New York City co-ops and condo sales.
The legal side
There are a lot of ways your lawyer protects you during his/her legal due diligence. This includes working with the title insurance company to ensure the property’s title is free of liens and the seller can deliver it cleanly. He/she also makes sure sellers represent the property properly. For instance, ensuring all bedrooms listed are legal. The unit’s listing may state it is a two bedroom, but your lawyer determines that one does not meet a bedroom’s legal definition.
Your lawyer should look into the building’s history, to determine if there have been any violations. He/she also reads through the typically lengthy offering plan document. This applies to all buildings, not merely new ones. It includes every detail on the property.
Unique circumstances come up that your lawyer has to deal with when conducting due diligence. While these may allow you to obtain a bargain price, it also presents challenges for lawyers. This includes estate sales, where getting all parties signatures and agreement is challenging. A divorce situation, particularly one that is contentious, is another one. Your attorney also has to see how the title is held. In a foreclosure, a lawyer’s due diligence extends to the bank.
Review of building financials
Your lawyer will conduct financial due diligence on your behalf. You want to ensure the building is financially sound. Your lawyer will check at least a couple of years’ worth of the financial statements, along with the current year’s budget. We think you should read the financials, too. This way, you can ask him/her any questions.
He/she typically goes beyond the statements to also look for any liens on the building.
The Condo or Co-op board minutes
Your lawyer should also read the co-op’s or condo’s board meeting minutes as part of his/her due diligence. This way, he/she can relay to you any issues that have been cropping up. The minutes should provide insight into the building’s financial and operational details. These internal issues could include a roof or elevator in need of repair. A buyer needs to know this since there could be a potential assessment that would increase the monthly common charges or maintenance costs.
A lawyer can help ease the process to allow you access to the minutes.
Due diligence is a crucial stage. Deals can break down at this point, whether you have been intentionally misled or not. This gets into the nitty-gritty details, including those regarding the unit and building. This includes necessary information, but also whether there has been lead paint, asbestos, and mold. Should issues crop up, your attorney will advise you on the next courses of action.