The legal side of real estate can be quite complicated to understand for someone who isn’t an attorney with experience in this area of the law. As an investor, you’ve spent so much time honing your ability to find and successfully fix and flip or buy and hold profitable investments, but when it comes to the legal aspects, you may be unclear how to proceed. This is why having a real estate lawyer is a wise choice because they’ll be able to provide valuable assistance and general advice for anything throughout the process you may be confused about.
Problem #1 Creating Entity Documents
When starting your real estate investing business, one of the first pieces of legal trouble you can fall into is creating your entity documents. For a corporation, you will have articles of incorporation and by-laws that the lawyer will look at. For an LLC, there will be articles of organization and an operating agreement to contend with. Because many investors decide to fill out these documents alone, attorneys tend to find that the information provided is insufficient. For example, failing to put your wife’s name on the operating agreement even though you both own the company. Also, you need to have a clear delineation of authority such as who is the manager, the president, vice president, or treasurer. If you have multiple members, who owns what percentage of the company, and is everyone’s consent required when performing certain daily operations? An attorney will make sure all these documents and paperwork are in order so you avoid having any closing issues or delays.
Problem #2 Reviewing Loan Documents
After you locate a property you wish to invest in, you will need to find the rest of the funding to finance your purchase. When you are faced with the loan documents, a real estate attorney will help you review these and you can ask questions about anything you are unclear on. This is especially true for a first-time investor who has never seen a loan document before and doesn’t know how to read it.
Problem #3 Evaluating Purchase And Sales Contracts
This is a very important step in the buying process because this is essentially what will define your agreement with the seller to purchase their property. Once you sign on that dotted line, for the most part, you are held to it, and if you can’t get out of it, then you risk losing your deposit. An attorney can help you negotiate these outs before something unexpected happens. Because contracts favor the seller, buyers don’t usually know what to look for. For instance, most buyers don’t realize that the short inspection period provided on standard real estate contracts can actually be extended. An attorney will be familiar with this and can request more time for a thorough inspection. Better inspections, such as discovering mold, mean better opportunities for having outs in the contracts or reasons to negotiate the price down.
Problem #4 Understanding The Closing Process Investors don’t always know what the process will look like when they get to the closing stage. Prior to even going to a closing, investors should make sure that all requests made by the underwriting team are resolved. On the day of closing, it is important to bring with you anything that the lender, title company, or any other interested party requires such as a voided check to set up mortgage payments. Sometimes investors aren’t in town for the closing but are required to sign the loan package in person, so a mobile notary needs to be scheduled beforehand. A lawyer can offer experienced advice on this overall process and help clarify anything that the investor is not sure about.
Problem #5 Dealing With Title Issues
During the closing stage, you may encounter title issues that could hinder your purchase. These can include judgements, unpaid HOA fees, or outstanding taxes that have become liens against the property that now must be satisfied. Investors need to know that unless these liens are cleared prior to closing, these liens will stay with the property, not the owner, so when the investor acquires the home, they are also acquiring these debts along with it. For example, if the previous owner had the roof repaired but failed to pay the contractor, then the contractor may have filed a lien on the property. This needs to be paid prior to closing, so your attorney will understand how to negotiate with the seller to have this lien, and any other unpaid liens, satisfied.
Whether you are a first-time investor or have been at this for a while, you never know what legal issues may come up that you aren’t anticipating. A real estate attorney is a helpful asset to have throughout the entire investing process. Find a reliable lawyer who you know is experienced in this field and allow them to guide you along the way, so all you’ll need to worry about is where you’re going to find your next great investment.
About the Author
Erica Hackmyer is the content writer for LendingOne, a direct private real estate lender that offers short-term loans for non-owner-occupied residential properties, specifically regarding fix-and-flip, buy-and-hold and lines of credit to fund larger projects.