Property taxes are a primary source of revenue for many local governments. They are also a significant expense for homeowners. Even after you have paid off your mortgage, property taxes remain. That is why it is important to understand your property tax bill. If you know how it is calculated, you will have an idea of what your bill should be each year, allowing you to budget accordingly, avoid surprises and spot any costly errors on your bill.

So how are property taxes calculated?

Your property tax bill is based on the assessed value of your property, any exemptions you qualify for and a property tax rate. People sometimes think that their municipality’s assessor sets property taxes. This is not true. The assessor’s role is only to determine what the market value is for your property using a market, cost, or income approach, depending on the type of property. Once the assessor has determined your market value, the assessor then calculates your assessed value, which is a simple mathematical calculation that multiplies the market value by a predetermined Uniform Percentage of Value (“UPV”) set by the State of New York. The UPV provides a standardized assessment calculation to ensure that every property receives an equitable assessment. So for example, if the UPV is 40%, and your market value is $500,000, your assessed value would be $200,000 ($500,000 multiplied by 40%).

What if you disagree with your assessment?

Once the assessor has determined the assessed value of all the properties in a municipality, he or she will publish what is referred to as the “tentative assessment roll,” which is a comprehensive listing of all properties, their determined market value, and their assessed value. For most municipalities in New York, the tentative assessment roll is published in the first week of May. If you disagree with your assessment you must file a complaint seeking an Administrative Review of your assessment by the deadline established by your municipality. The deadline is usually a few weeks after the tentative assessment roll is published – typically the fourth Tuesday of May and it is referred to as “Grievance Day.” This process is referred to as “grieving” your assessment. There is no cost to grieve an assessment and it does not require you to hire an attorney.

How do you file a complaint seeking Administrative Review of your assessment?

Outside of New York City and Nassau County, a grievant must use Form RP-524 entitled “Complaint on Real Property Assessment. You can find the form here https://www.tax.ny.gov/pdf/current_forms/orpts/rp524_fill_in.pdf. File the completed form and any supporting documents justifying your request with the assessor or the board of assessment review with your municipality. Please note if your property is located within a village that assesses property, you will have two assessments – one for the village and one for the town. If you wish to grieve both assessments you will need to complete and submit separate RP-524 forms to each municipality. Be sure to check with your municipality as to submission deadlines and the date of Grievance Day. In most municipalities the deadline is Grievance Day. If you do not file the RP-524 form by the deadline, you will lose the opportunity for an Administrative Review and a Judicial Review.

Who determines whether or not the relief requested should be granted?

Each municipality has a board of assessment review (“BAR”). The BAR is a quasi-judicial body charged with the judicial responsibility to hear grievances against the current assessment role, obtain the facts, and apply the law. The BAR consists of not less than three (3) and no more than five (5) members appointed by the municipality’s legislative body. Members must possess knowledge of property values in the municipality and initial appointees and reappointees must attend training sessions taught by a county director of real property tax services. Neither the assessor, nor any members of his or her staff, may be appointed to the BAR.

Who can grieve an assessment?

Any person who pays property taxes can grieve an assessment. This includes not only property owners, but also purchasers under contract to purchase the subject property, and tenants who are required to pay taxes pursuant to a lease or written agreement.

What if you do not reside in the municipality where the property is situate?

A non-resident owner can request a date after Grievance Day for the grievance hearing but must submit the RP-524 form on or before the regularly scheduled Grievance Day. Requests must be made to the assessor or BAR on or before Grievance Day and the BAR must set a date no later than twenty-one (21) days after Grievance Day for the hearing.

Can you grieve more than one year?

No. Only the assessment on the current tentative assessment roll can be grieved – you cannot grieve assessments from prior years.

Can the assessor reduce an assessment prior to Grievance Day?

Yes. On or prior to Grievance Day, a complainant and the assessor may stipulate to a reduced assessment of the value of the subject property. To do so, Part Six of the RP-524 form must be completed and signed. Note however if you enter into a stipulation, a complainant may not ask the BAR for a further reduction in your assessment. Further more, if the agreed upon reduced assessment appears on the final assessment roll, a complainant will not be permitted to seek an even lower assessment through the Judicial Review process (see below for explanation on Judicial Review).

Do you have to appear at the BAR hearing on Grievance Day?

No, but a complainant does have the right to attend the hearing and present statements and/or documentation in support of their grievance. A complainant may appear personally, with or without an attorney or other representative. If a complainant chooses to be represented by an attorney or other representative, they must authorize that person to appear on their behalf by signing Part Four of the RP-524 form. Note however the BAR may require a complainant or their representative to appear personally, or to submit additional evidence. If a complainant refuses the BAR’s request, the BAR can deny the complainant’s request for a reduction in assessment based on such refusal.

When do you find out whether or not your request has been granted?

A complainant will receive a written notice of the BAR’s determination (except where the BAR ratifies a stipulated assessment). The notice must contain a statement of the reasons for the BAR’s determination.

What if you do not receive the requested relief?

If a complainant is dissatisfied with the decision of the BAR, they may seek Judicial Review of the assessment via Small Claims Assessment Review (“SCAR”) in Small Claims Court or a Tax Certiorari proceeding. SCAR is only available to: property owners who live in their one, two or three family dwellings that are used exclusively for residential purposes or owners of vacant land that is not of sufficient size to contain a one, two or three family dwelling. For information on SCAR see the New York State Unified Court System website at https://www.nycourts.gov/litigants/scar/. Tax Certiorari proceedings are for all other scenarios and are commenced in NY Supreme Court pursuant to Article 7 of the Real Property Tax Law. It is highly recommended a complainant hire an attorney for a Tax Certiorari proceeding.

What is the deadline for Judicial Review of the BAR’s determination?

SCAR and Tax Certiorari proceedings must be initiated within thirty (30) days of the filing of the final assessment roll or notice of such filing, whichever is later.

In summary, the property tax grievance is not as complicated as most property owners believe. It only requires a little bit of research, completing the RP-524 form, and submitting same before the deadline.

When it comes to buying and selling real estate, there are certain situations where it helps to have a qualified legal professional on your side. If you are looking to get into real estate investing, attempting to purchase a short sale or foreclosure, or having unexpected complications with a simple transaction, it may be time to hire a real estate attorney. The question is why you should not go out and hire the cheapest attorney you can find.

Legal representation of exceptional quality should be the most important criterion when searching for an attorney and it will lead to the most favorable outcome possible. Any New York licensed attorney, may engage in real estate transactions within the state with minimal or no additional training. However, real estate law is known for its complexity. Attorneys who are unfamiliar with the complexities of real estate transactions may encounter problems when overseeing a real estate transfer. So avoid hiring “the dabbler” to help you buy or sell real estate. “The dabbler” is the attorney whose practice is 1% real estate and 99% everything else. A real estate attorney is a lawyer whose primary practice is real estate. The attorney may work in other areas of law, but the main focus is on residential and/or commercial real estate transactions.

Once you have narrowed down your search to real estate attorneys, you should consider experience. Generally, the more complicated the transaction is, the more experienced you want your attorney to be. Every real estate transaction is different and it is to your advantage to find an attorney who is experienced in handling situations similar to yours. Choosing an attorney who is familiar with the type of transaction involved works in your favor, since they already understand the potential problems that can arise and how to head them off. Just keep in mind that you may end up paying more for the services of an attorney who has been practicing for ten or twenty years than you would for one who is two or three years out of law school, which leads to the point of this article – price is an important consideration when it comes to choosing a real estate attorney but it should not be the only one.

You have to ask yourself what are you getting for your money? In addition, to experience you should consider how accessible your real estate attorney will be throughout the process. If you are considering hiring a larger firm to help you purchase or sell your house, it is a good idea to know whether anyone else will be working on your transaction besides your attorney. In some instances, part of the workload may be handed over to paralegals or junior attorneys so you need to be sure that you are comfortable with who has access to your information and how accessible your attorney will be to answer your questions and address your concerns. Communication is key to a good working relationship with your attorney and you need to feel confident that they will be able to address your concerns if and when they arise.

At Primo & Hills Law Firm, we recognize we are not the cheapest attorneys that you could hire.  We do not try to be, we do not want to be and frankly picking an attorney based on how little they charge is a terrible way to choose a lawyer.  At Primo & Hills Law Firm, we strive to provide the highest quality legal representation as well as the finest customer service possible.  There is no way that we could possibly do that on the cheap. You would never consider choosing a surgeon based on who is cheapest, so why would you consider choosing your lawyer exclusively on price? Consult with us, check out our website, and consider our experience level with your type of transaction.  While cost is certainly a component of the decision, effective learned counsel should be your primary goal.

Buying a home usually takes several years of savings and hard work, but a fire or inclement weather can destroy it in a matter of minutes. Homeowner’s insurance is designed to protect your investment in a residence, and unless you purchase a home for cash, you will have a mortgage lender who will mandate at least hazard insurance coverage equal to their financial interest.

While your lender will mandate hazard insurance coverage to protect their interest, you should consider protecting your own equity. If you buy a home with a low down payment loan, your equity will be small. However, if your loan-to-value ratio (your mortgage balance divided by the home’s purchase price) is 80% or less, you should protect your 20% (or more) in equity.

I have sat down with my colleague Michael J. Crowley, V.P. of Crowley Insurance Agency, to answer your basic questions regarding homeowner’s insurance coverage.

Courtney:      Mike, I am asked frequently by clients what the difference is between hazard insurance (required by lenders) and homeowner’s insurance. What is the difference and why is homeowner’s insurance important?

Mike:              Yes, Courtney. What most people do not realize is that hazard insurance is not synonymous with homeowner’s insurance. Hazard insurance only covers physical damage, whereas homeowner’s insurance typically includes liability protection and hazard insurance. Your lender only cares about protecting against hazards,[1] but along with protecting your equity you should cover your personal property, including furniture, appliances and clothing, and most importantly you should have coverage for personal liability for injuries to others or property damage you or members of your family cause to others. If the bank takes out the insurance policy for you, they are only going to take a hazard policy.

Courtney:      Can you elaborate for our readers the different types of coverage available under a standard homeowner’s policy?

Mike:              Homeowner’s insurance is broken into two main parts: one – property coverage, and two – liability/medical coverage. Property coverage provides coverage for the dwelling itself, any detached structures, the contents on premises and even some contents off premise. Whereas, liability and medical coverage provides coverage in the event you or your family cause bodily injury or property damage or if someone gets injured on your property.

Courtney:      Okay, now that we know what types of coverages are available, can you provide our readers with examples of the various types of events/occurrences that they would be protected against under such a policy?

Mike:              Under the Standard Homeowner’s Insurance Policy also known as HO-3 or Special Form you will see the following losses covered:[2] fire, lightening, wind, hail, explosions, glass breakage, smoke, theft, weight of ice and snow, vehicle damage, overflow of water from appliances, freezing, electrical damage, heating system loss, ice back up, spilled chemicals, overhead appliances, dropped objects, accidental damage, damage by aircraft, and vandalism.

Courtney:      Mike, what are some factors that affect homeowner’s insurance premium rates?

Mike:              Factors that affect premium rates are as follows:

• Credit– Insurance Carriers will run Insurance Credit Scores. These are slightly different than a traditional credit report but scoring is done very similar. The one difference is the insurance score doesn’t affect your hard credit score rating.

• Location – Some insurance companies use data to determine which neighborhoods have more claims than others, and they increase their rates accordingly. They may also look at the distance of your home from the nearest fire station and fire hydrants.

• Home Age, Features and Materials – The age of your home, property features and even building materials can affect how much coverage you need to carry which affects your premiums. Certain features of your home (regardless of its age) may your homeowner’s insurance. These include swimming pools, trampolines, and wood stoves.

• Whether House Has Been Updated – Many older homes tend to develop problems with electrical wiring, plumbing, and foundation, more frequently than newer/updated homes. Some renovations to ward against common problems may keep your insurance down.

• Claims – For current homeowner insurance policies, the frequency of your claim record will translate into higher rates. Carefully evaluate every claim before submitting it for reimbursement. Ask yourself whether the claim is worth risking a hike in your premium next year. Preventive maintenance and keeping up with small problems, may prevent larger and more costly ones in the future.

Courtney:      Mike, I think one of the most confusing things for homeowners to understand is the difference between Replacement Cost versus Appraised Value or Purchase Price. Mortgage lenders require my clients to carry full “replacement cost.” What does this mean, and what do our readers need to know?

Mike:              Replacement cost is the amount of money it takes to replace a structure with a similar type of construction, an expense which can vary from year to year. When real estate markets are appreciating, it can often cost more to buy a resale or used home than to build a new home. But when markets decline, it is often cheaper to buy an existing home than to build new. We use a specialty tool to calculate the replacement cost of a property. We use factors like square footage, year built, style of the house, etc. to calculate what it would cost to rebuild the property the same way at present day construction prices. As such replacement cost can be more than your purchase price or appraised value. If it costs more to build a new home than the initial expense of your home, then you will want to make sure the replacement cost coverage of your policy is higher than the price you paid. If prices are appreciating in your neighborhood, you may also want to increase your basic insurance coverage but the replacement cost coverage might go down.

Courtney:      Co-insurance or replacement cost penalty are also common insurance terms that are very confusing to my real estate clients. Can you break it down for us in layman’s terms?

Mike:              Built into insurance contracts is a clause known as coinsurance or replacement cost penalty. Think of property coinsurance as a warranty or condition of the policy.  The coinsurance states what percentage the insurance you are carrying bears to the value of the property you are insuring.  The value must be either actual cash value (current market value) or replacement cost (cost to rebuild) depending on the policy you have selected. At the time of a loss, the coinsurance clause comes out of the dusty regions of the policy to be activated. If the policy has 80% coinsurance, the insured must be carrying an insured amount that is NO LESS than 80% of the value of the property at the time of a loss.  If the amount carried is at least 80% or greater of the value of the property, the insured is paid 100% of his claim (not 80% as so many buyers think) and everyone is happy. If the amount of insurance that is actually being carried is less than the 80% shown above, the coinsurance clause fires up.  In property insurance language, “coinsurance” means that you are accepting a role as a co-insurer in the event of a loss and are willing to take less than the full claim amount.

Courtney:      Can you give our readers any tips on choosing the right insurance agent to avoid insurance coverage gaps?

Mike:              Insurance agents play an important role in the insurance marketplace. Insurance policies do not provide “peace of mind” if they have gaps in coverage that leave policyholders without benefits following a loss. Accordingly, insurance agents who promise to work and advise insurance customers of their options should be selected over those that promise to obtain “cheap insurance.” These agents recognize their obligations to customers extend far beyond being mere order takers and providing the cheapest insurance premium. Instead, they are the agents who procure insurance policies which provide the “peace of mind” the insurance industry promises and advertises to those who purchase its products.

Courtney:      Thank you, Mike!

[1] Hazard insurance typically does not cover earthquakes, floods and certain other catastrophic events. Your lender may require you to buy the additional — and often expensive –coverage if you live in an area susceptible to such hazards

[2] All Losses need to be sudden and unexpected.

A solar energy system is “real property” once it has been permanently affixed to land or a structure (See Real Property Tax Law §102(12)(b); see also, Metromedia, Inc. v. Tax Commission of the City of New York, 60 N.Y.2d 85, 468 N.Y.S.2d 457 (1983); 8 Op. Counsel SBEA No. 3). As such, it is taxable unless it qualifies for an exemption (Real Property Tax Law §300).

There is an exemption statute that applies specifically to solar energy systems: Section 487 of the Real Property Tax Law (“RPTL”). Section 487, which also covers wind power energy systems and farm waste energy systems, generally provides a 15-year exemption from real property taxation for the increase in value resulting from the installation of a qualifying system. A number of questions have recently arisen concerning the application of this exemption statute.

1. Must every municipality offer the RPTL §487 exemption? Each municipality may decide for itself whether to offer the exemption. Unlike most other local option exemptions, however this exemption applies within a municipality unless the municipality has taken action to disallow it.

2. How does the option feature work? The location option that is attached to the RPTL §487 exemption is structured as an “opt-out”, not an “opt-in.” That means that the exemption is automatically in effect within a municipality unless it has adopted a local law, ordinance or resolution providing that the exemption shall not be available therein. In municipalities that have taken no action one way or the other, the exemption is in effect. If a local law, ordinance or resolution opting out of the exemption is adopted, a copy must be filed with the New York State Department of Taxation and Finance and the New York State Energy Research and Development Authority (“NYSERDA”).

3. May an opt-out be made retroactive? If a municipality opts out, it is effectively disallowing the exemption to solar energy systems where construction had not begun by the effective date of the applicable local law, ordinance or resolution (or by January 1, 1991, if later). See RPTL §487(8)(a). Where a system’s construction had begun by that date, it is not impacted by the opt-out and is entitled to the exemption if otherwise qualified (though it may be obligated to make PILOTs under certain circumstances; See Nos. 6-10 herein. Note that for the purposes of the RPTL §487 exemption, the construction of a solar energy system is deemed to have begun upon the execution of a contract or interconnection agreement with a utility or, if applicable, upon the payment of a deposit thereunder. The owner or developer must give written notice to the appropriate municipalities when such a contract or agreement is executed. See RPTL §487(8)(b).

4. If a municipality has opted out, may it restore the exemption later? If a municipality that had opted out wishes to begin offering the exemption later, it may do so by repealing the local law, ordinance or resolution that opted out. This is not stated explicitly in the law, but such authority is believed to be implicit in statutes of this nature, absent language to the contrary. A copy of any local law, ordinance or resolution restore the exemption should be filed with both the Department of Taxation and Finance and NYSERDA.

5. May a municipality opt out of the exemption for commercial property while leaving it in place for residential property? If a municipality does opt out, it must do so for all properties. It cannot allow the exemption for one type of property while disallowing it for another because RPTL §487(8) states that once a municipality has opted out, “no exemption under this section shall be applicable within its jurisdiction.” If a municipality does not opt out, however, the law may allow it to treat commercial and residential properties differently when deciding what their PILOT obligations should be. See No. 8 herein.

6. If a municipality leaves the exemption in place and requires owners to pay PILOTs, how much should those payments be? That is largely a local decision, except that the statute sets limits on how large these PILOTs may be, and on how long they may last. Specifically, it provides that the PILOTs may not exceed the taxes that would have been payable if the property were not exempt under RPTL §487. It also provides that the period over which the PILOTs are to be paid may not exceed 15 years. See RPTL §487(9)(a). In effect, then, if a municipality leaves the exemption in place and imposes the maximum allowable PILOT obligation, the owner will be making payments to the municipality in the same amount as if the property were fully taxable. The primary difference is that those payments will have the legal status of PILOTs rather than property taxes.

7. What is the maximum PILOT for a solar farm built on vacant land? The limit on the PILOTs in such an instance is the amount of taxes that would have been levied on the parcel as it now exists – that is, the land with the panels – if the municipality had opted out of the exemption.

8. May different PILOT requirements be imposed upon commercial and residential systems? While it is clear that a municipality may not opt out of the RPTL §487 exemption for one type of property while leaving the exemption in place for another type (See 5 herein), it is less clear whether it may impose different PILOT requirements on different property types. RPTL §487(9)(a) states simply that the municipality may require “the owner of a property” that qualifies for the exemption “to enter into a contract” to make PILOTs. This wording, which arguably frames the PILOT question as an individualized determination rather than a collective one, provides no guidance as to how owners should be treated relative to one another. While principles of equal protection would clearly preclude a municipality from drawing arbitrary distinctions between similarly-situated owners when setting their PILOT requirements, it is believed the law may reasonably be read as leaving open the possibility of treating owners of different types of property differently, as long as there is a rational basis for doing so. Accordingly, if differential treatment is desired, we suggest that the issue be directed to the municipal attorney, who would have to be satisfied that any such differentiation could successfully be defended in the event of litigation.

9. May a municipality enter into a PILOT agreement that requires the owner of a solar energy system to provide the municipality with energy at a discounted rate, or that bases the PILOT payments upon the amount of energy produced by the system or the value of the system? Nothing in RPTL §487 prohibits a municipality from structuring a PILOT as described above. However, as noted above (See 6-7), RPTL §487(9)(a) states that PILOT agreements may require annual payments in an amount not to exceed the amounts that would have been payable if not for the exemption. Therefore, no matter how the arrangement is structured, the PILOT obligation imposed upon the owner must comply with this limitation.

10. Our municipality received a notice stating that the sender of the notice intends to construction a solar energy system within our municipality. What is the significance of this notice? In some cases, a municipality that has not opted out of the RPTL §487 exemption may need to take action to preserve its rights to collect PILOTs on exempt property. The law now provides that the owner or developer of a solar energy system may notify a municipality in writing that it intends to construction such a system. If an owner or developer does so, and the municipality wishes to collect PILOTs on that system, then within sixty (60) days of receiving the notice of intent, the municipality must notify that owner or developer that it intends to require it to enter into a PILOT contract. See RPTL §487(9)(a). Note that the law does not require an owner or developer to use a specific form or include specific language when giving a municipality notice of its intent to construct a solar energy system.

11. May solar panels receive the RPTL §487 exemption if they are not owned by the owner of the underlying land or building? There is no ownership requirement in RPTL §487, so solar panels that otherwise qualify are entitled to the RPTL §487 exemption even if they are owned by a third party.

12. Solar panels will be installed on property that is owned either by a municipality or by a public or private college. The panels themselves will be owned by a private entity, which will sell the electricity to the municipality or college at the discounted rate. Due the 15-year limit on the RPTL §487, it has been suggested that the panels may be granted a permanent exemption under the exemption statutes that apply to municipal corporations or not-for-profit educational organizations, rather than under RPTL §487. Is this permissible? The real property tax exemptions that apply to municipalities and not-for-profit education organizations are embodied in RPTL §§406 and 420-a, respectively. Each statute provides that in order to qualify for the exemption real property must be both (1) “owned by” the eligible owner (i.e., the municipality or educational organization) and (2) used for qualifying purposes. Since these panels will be used to general low-cost electricity for the municipality or college, it may reasonably be argued that these panels will be used for qualify purposes. However, the use requirement is just one of the requirements that must be satisfied to qualify for exemption under RPTL §§406 and 420-a. In each case, the property must also be owned by the exempt entity in order to qualify for exemption. Where the panels are owned by a third party, they may not properly be granted a RPTL §§406 and 420-a exemption.   Note that this analysis does not require the removal of the RPTL §§406 and 420-a exemption from the land or buildings to which the panels will be attached.
13. There is a separate exemption statute for “residential conservation improvements,” namely, RPTL §487-a. Do solar energy systems qualify for this exemption? RPTL §487-a states in its entirety: “Insulation and other energy conservation measures hereafter added to one, two, three or four family homes, which qualify for (a) financing under a home conservation plan pursuant to Article VII-A of the Public Service Law, or (b) any conservation related state or federal tax credit or deduction heretofore or hereafter enacted, shall be exempt from real property taxation and special ad valorem levies to the extent of any increase in value of such homes by reason of such addition.” It is undeniable that solar systems offer many benefits, but energy “conservation” is not among them. A conservation measure leads to the use of less energy. Examples include installing better insulation or upgraded thermostats, replacing leaky windows or inefficient furnaces, etc. Those are the types of improvements that RPTL §487-a was enacted to exempt, as the legislative history indicates (See, e.g., L. 1977, c. 858, §1, “Legislative Findings”). Solar energy systems are in a different category. They lead to the use of clean, renewable energy in place of energy generated from fossil fuels, but they do not necessarily lead to the use of less energy overall. In fact, solar systems may actually lead to the use of more energy, since beyond the fixed cost of installation, the electricity they produce is essentially free. Moreover, it is a broadly-accepted principal of statutory construction that specific legislative language takes precedence over general language. While RPTL §487-a generally applies to “insulation and energy conservation measures,” RPTL §487 specifically applies to solar energy systems (as well as wind and farm waste energy system). In fact, both statutes were enacted in the same year, just a few weeks apart (L. 1977, c. 322 and c. 858). It only stands to reason that RPTL §487-a must have been intended to apply to improvements other than solar energy systems.

*Disclaimer. The content of this article was published in the Association of Towns of the State of New York publication entitled “Talk of the Towns & Topics,” vol. 30, September/October, and was not authored by Courtney M. Hills, Esq.

For first-time homebuyers, closing on a home purchase can be like finishing a long and grueling race. Most closings take place within sixty (60) to ninety (90) days after the Contract is signed, and involve plenty of paperwork, a lot of signatures, a roomful of lawyers, and many checks changing hands. The procedure for contracting to buy a home in New York State differs from that in many other states. If you are planning to buy a home in New York State, you will need to become familiar with the basic steps and terminology – particularly if you have bought a home somewhere else before.

Here is a step-by-step guide to a typical residential real estate transaction in New York State.

Part 1:            Contract; Attorney Review; Inspections

1. Acceptance of Buyer’s Offer. The process starts when a Contract to Purchase Real Property (“Contract”) is submitted to Seller (typically drawn up by a real estate agent). Seller can accept, reject or counter the offer. Once an agreement has been reached amongst the parties and a deposit or earnest money has been paid to Buyer’s attorney or real estate agent[1], the Contract is then forwarded to both Buyer’s and Seller’s respective attorneys for review and approval.

2. Attorney Review and Approval. Most New York State residential real estate contracts provide for a seventy-two (72) hour attorney review, commencing once all parties have signed the Contract. During this period, changes can be made to the Contract, provided same are agreed upon by both parties. Also, either party can walk away during this seventy-two (72) hour period if either of their respective attorneys finds cause.

3. Most New York State residential real estate contracts provide for Buyer inspections of the premises – although Buyer can waive the right to inspect the premises during contract negotiations. The types of inspections vary by property type, locale, and situation, but common inspections in New York State include an engineer’s inspection (performed by a New York licensed engineer) or a home inspection (performed by a New York certified home inspector). Other inspections that may be performed include termite, radon, lead paint, and asbestos inspections. While an initial inspection may be performed before the deal is officially “under contract,” all inspections must be completed by the inspection contingency date indicated in the Contract. Based on the outcome of the inspections, a Buyer may modify their offer or ask for closing cost credits if any defects are found.

4. Other Certifications and/or Documentation. In addition to inspections, homebuyers in New York State may need to obtain certification and/or documentation of:
   • Buried Oil Tanks. Before homes in New York State (and elsewhere on the East Coast) were heated with natural gas, they were heated with heating oil. This oil and the buried tanks that once contained the oil are environmental hazards, and they must be decommissioned through a process subject to inspection and approval by the appropriate regulatory agencies in New York State. While decommissioning is not a requirement to complete the transaction, it does present significant risk to a new owner.[2]
   • Well Testing. Homes that have a buried water well may need to comply with local municipal laws that require testing of water wells to ensure environmental safety.
   • Flood Search. This is a survey of the property to assess its risk of flood damage.
   • Certificate of Occupancy. This is a document that proves the property can be occupied and lived in, and that it complies with zoning and building code regulations.[3]

Part 2:                        The Mortgage Process

1. Loan Application. A Buyer submits a loan application to their lender, either directly or through a mortgage broker. In New York State this is referred to as the Uniform Residential Loan Application.

2. Loan Estimate. Within three (3) business days, the lender provides a Loan Estimate[4] to the Buyer, which consists of a breakdown of estimated closing costs.[5]

3. Personal Financial Disclosures. At the request of the lender, the Buyer must submit a series of personal financial disclosures. These vary by situation, but the most commonly requested documents are:
   • Several months (typically three (3) months) of statements from each bank account a borrower holds (including investment accounts).
   • Several months of statements from any outstanding loans, lines of credit, or other liabilities. This can also include documentation of rent payments.
   • Up to two (2) years of tax returns, released to the lender via an authorization submitted by Buyer using IRS Form 4506-T.
   • Recent paycheck stubs (typically the last month) and contact information for each borrower’s employer.
   • Any other disclosures that are material to a borrower’s financial situation. This includes but is not limited to marriage licenses, divorce settlements, child support, liens, bankruptcies, or judgments.
   • An explanation of any credit inquires.
   • Substantiation of any large deposits or cash gifts that are not regular income. In some cases, a large cash gift may look similar to a personal loan by a friend or family member, and lenders will require what is referred to as a Gift Letter. A Gift Letter is documentation from those that gave you the cash gift, stating the gift was not a loan. They may also ask for itemized deposit slips.[6]

4. Lender Approval. If your loan is approved, the lender issues what is referred to as a Loan Commitment Letter, stating its willingness to fund the mortgage provided certain conditions are met.[7] Once the Loan Commitment Letter is issued, the Contract’s financing contingency may be removed.[8]

5. Appraisal.  The lender or mortgage broker orders an appraisal. If the appraisal comes in lower than the purchase price, a lender can decline to approve the borrower unless a change is made to the purchase price or the size of the down payment.

6. Property Hazard Insurance. The lender will require the purchase of property hazard insurance to protect its interest against physical damage. A Buyer typically must provide proof of coverage and a receipt showing payment in full for the first year of the loan.[9]

7. Title Insurance. The lender will also require the purchase of title insurance. Title insurance protects the lender against any property loss or damage they might experience because of liens, encumbrances or defects in the title to the property.[10]

Part 3:                        The Closing

1. Title Search and Review. Prior to closing, a title search is conducted to determine if there are any liens, assessments, or encumbrances affecting title. In New York State, Seller’s attorney needs to provide Buyer’s attorney with an original updated abstract of title, an updated property survey, a copy of the proposed deed into Buyer (together with state reporting forms entitled “RP-5217” and the “TP-584” forms), a smoke/alarm carbon monoxide affidavit, and the statement of taxes and copies of the tax and, if applicable, water/sewer bills. Once Buyer’s attorney receives all of the title documentation they will review same and begin the process of getting the commitment for title insurance.

2. Clear to Close. Provided title is “clean” or “clear”, and the lender has determined Buyer satisfied all conditions of its Loan Commitment Letter, lender will issue the ”clear to close.” At this time the respective attorneys will schedule a closing date.

3. Statement of Sale; Final Cash Figures. Seller’s attorney will prepare a Statement of Sale that breaks down how much money they should walk away with after brokers and attorney’s fees, taxes, and the like are paid off. It will list Buyer’s and Seller’s “debits and credits” in the transaction.   Buyer’s lender will then prepare a final cash figure in the form referred to as a Closing Disclosure[11], which outlines what Buyer must bring to the closing table in the form of a cashier’s check.

4. Final Walkthrough. A final walkthrough will often be performed the day of or right before closing to verify the property is in the same condition it was when the process began.

5. At the Closing Buyer will execute all closing documents, including settlement statements and final loan documents, and Buyer pays the balance of the purchase price (balance after credits, deposits, and any down payments).[12]

6. Recording of the Deed, Mortgage and any other necessary instruments. The last step in the closing process occurs when the new deed, mortgage, and any other necessary instruments (such as affidavits) are recorded into public record at the County Clerk’s Office within the County where the premises are located.

Taking the time to understand the closing process and preparing appropriately should make the entire process run much smoother when the day arrives.

[1] Never pay the deposit directly to Seller.

[2] Note, this is not the same as an above-ground oil tank that may still be in use to heat the property.

[3] If the premises consist of a newly constructed home, a lender will require a Certificate of Occupancy prior to closing.

[4] As of October 3, 2015 the Loan Estimate replaced the Good Faith Estimate or GFE.

[5] The final costs are likely to deviate from this estimate.

[6] The exact amount that triggers this requirement varies by situation.

[7] The most common condition is a satisfactory appraisal.

[8] Most Contracts provide for a loan contingency deadline. If Buyer has not received a Loan Commitment Letter by the deadline, Seller can either declare the contract null and void or extend the financing contingency deadline.

[9] Hazard insurance only covers physical damage, whereas homeowner’s insurance typically includes liability protection and hazard insurance. Your lender only cares about protecting against hazards, but along with protecting your equity you should cover your personal property, including furniture, appliances and clothing, and most importantly you should have coverage for personal liability for injuries to others or property damage you or members of your family cause to others.

[10] A lender’s title insurance policy (also known as mortgagee policy) will only cover the lender’s interest. You can purchase a separate owner’s (also known as a fee policy) to protect your interest. It is a one-time fee, unlike hazard or homeowner’s insurance, which premium must be renewed annually.

[11] As of October 3, 2015 the Closing Disclosure replaced the HUD-1 Settlement Form.

[12] A seller may elect to sign all of his or her required paperwork ahead of time and permit an attorney to represent them at the closing.