In Illinois, real estate transactions begin when both the buyer and the seller sign a standard form contract completed by a realtor. This contract includes a provision for an attorney review period.
The purpose is to avoid any misunderstandings or unclear terms in the contract. Lawyers for both parties communicate to ensure there are no discrepancies and to modify the contract if necessary, for example, to include post-closing possession requirements or appraisal contingencies.
If either party cancels during this period, all earnest money is refunded, and both parties are freed from further obligation.
Understanding the attorney review in real estate contract
Before you sign the contract, you should check the contract and/or confirm with your real estate agent that an attorney review period is provided. The primary business terms of the contract, such as the purchase price and closing date, are technically not subject to modification under attorney review.
But if a home inspector or appraiser finds something wrong or there are terms that affect the parties’ legal rights, an attorney can use that as a reason to negotiate or terminate the contract, if necessary.
Negotiations during this period should involve the client and real estate agent, and aim to protect the client’s interests while maintaining positive relationships all around.
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Steps involved in the Attorney Review Process
Step 1: Preparation
To do their job effectively, attorneys must gather detailed information about their client’s needs at the start of the attorney review period. This is because standard contract terms may not meet the requirements of every deal.
For example,
- A post-closing possession agreement may be proposed if a seller needs to stay in the house after the closing date.
Attorneys also need to ensure that standard contract provisions, such as the proration rate for real estate taxes, are in their client’s best interest.
Step 2: Review of Documents
Purchase and sale agreement review
Attorneys check the contract for errors and ensure the seller provided all necessary disclosures. Both parties’ lawyers prioritize their clients’ needs.
Title documents review
Attorneys will review title documents, such as the title commitment and search package, to identify any issues with the seller’s ownership of the property that could create problems with the sale or that need to be resolved before closing.
Mortgage Contingency Review
A mortgage contingency clause allows the buyer to cancel a home purchase if they fail to obtain financing within a specific period of time. During the attorney review period, both the buyer and seller should pay attention to this clause.
If the buyer fails to obtain financing within the specified timeframe, they can cancel the contract and get their deposit back.
However, if the buyer misses the deadline for financing and does not cancel the contract, they may lose their deposit.
Step 3: Types of Issues Addressed
Title Issues
Attorney reviews title search to ensure deed can be transferred without any complications, such as if a former spouse’s name is still on the deed or if there are liens on the property. Any issues are assessed and fixed if possible.
Zoning Regulations and Easements
Research must also be conducted on any governmental regulations and restrictions that affect the property, which may impact the buyer’s current or future plans. Minor restrictions or easements, such as telephone wires that cross the property, also need to be analyzed. While not all issues will necessarily impact the real estate transaction, the buyer must be made aware of them before the sale goes through.
Financing Terms
The buyer’s pre-approval for a mortgage doesn’t guarantee they’ll get a loan. The terms of the mortgage contingency are finalized during attorney review to determine how much time the buyer has to secure financing and on what terms.
Step 4: Home Inspection
Benefits of Home Inspection
A home inspection is typically conducted concurrently with the attorney review period, allowing buyers to identify any necessary repairs and establish a fair price.
Identifying Necessary Repairs:
Hiring a home inspector provides peace of mind to first-time buyers by systematically reviewing the property’s condition and identifying any potential issues, such as whether the roof is going to leak at the first sign of rain, or if the A/C won’t work come summer. The home inspector takes a couple of hours to systematically review the house and create a comprehensive report on the findings.
Establishing Fair Price
Armed with the inspection report, buyers can request repairs or a credit from the seller at closing to account for necessary repairs. Major issues discovered during the inspection can also be used to renegotiate the price or negotiate a credit from the seller.
Home Inspection Process
Find a Qualified Inspector:
Ask your real estate professional for a recommendation, or search for local inspectors on sites like Thumbtack.
Schedule the Inspection:
Get the inspection done as soon as possible to identify any potential risks associated with the property.
Review the Inspection Report:
The report is a thorough assessment of the property that can reveal various issues. If the house is a couple of decades old, it’s common to find that the plumbing, electrical, or gas systems are outdated, and they may need to be replaced for safety reasons.
Negotiate Repairs:
Work with your lawyer to determine if any repairs should be requested from the seller or if credit should be issued for the buyer to complete repairs after closing.
Waiver of Home Inspection Contingency
In some cases, buyers will waive their right to a home inspection to make their offer more enticing. Remember that you can waive your right to request credits from the seller for issues uncovered by the inspection without waiving the right to have an inspection altogether. This serves the purpose of making your offer more attractive, while still providing you the benefit of discovering any serious issues with the property that need to be addressed.
Step 5: Negotiations
Buyer Requesting Repairs
If major issues are found during the home inspection, such as problems with the foundation, plumbing, pests, mold, or electrical, the buyer can request repairs to be completed before closing. Keep in mind that requests for minor items might not get a positive response.
Seller Refusing to Make Repairs
If the seller refuses to acquiesce to the buyer’s requests for repairs, the buyer’s attorney can negotiate for credit so that the buyer can make the repairs after the closing. If the seller rejects this possibility, the buyer must decide if it’s worth proceeding.
Step 6: Finalizing the Documents
Once the above negotiations have been finalized, the attorneys must modify the real estate contract to reflect what’s been agreed upon. This modification usually takes the form of an addendum to the contract or an attorney review letter that’s signed by both parties.
What can Delay or Go wrong in the Attorney Review Period
Requesting Extensions
During the attorney review process, the buyer’s attorney can request an extension for the home inspection contingency if the inspector needs more time to complete the report.
Negotiations over the contract terms
If anything that impacts the parties’ legal rights is discovered by a licensed inspector, appraiser, or any other means, even if a signed contract exists, either party’s attorney can renegotiate the contract.
If there are title issues like a broken chain of title or lot line challenges, the seller’s attorney will work to resolve them to reach the closing.
Cancellation of the Sales Contract
A lawyer familiar with Illinois real estate law will ensure that the contract addresses any potential issues that could arise over the course of a transaction.
If necessary, the contract can even be terminated. This is how attorney review works.
You need an experienced real estate attorney in your corner who will be able to catch any of the loose ends or hidden traps that can come back to haunt you down the line.
Discovery of title issues or liens on the property
The title agency that conducts the title search might uncover ownership issues or prior liens on the property. These all need to be resolved before the sale. If that’s not possible, it could jeopardize the deal.
Problems with property disclosure
Illinois mandates sellers to provide a report of “material defects” prior to finalizing a real estate contract. This report is comprised of 24 disclosures that must be reviewed to check if any of them could reduce the property’s value or endanger the occupants’ health. Specific disclosures like those for lead-based paint and radon might also be needed.
Unresolved repairs or issues uncovered during the home inspection
A home inspection can turn up a whole host of issues that weren’t apparent at the time of the initial contract. Cracks in the foundation, bad plumbing, pests, mold, electrical issues, etc. The buyer has the right to request repairs before the sale goes through, but at a certain point, the buyer may need to face the reality that the property is not worth buying.
Financing issues with the buyer
Most sellers will ask for a pre-approval letter for a buyer’s mortgage if it’s not a cash deal. However, pre-approval is not a guarantee. The buyer might run into issues getting a loan, which could cause the sale to fall through.
Unexpected changes in either party’s financial or personal circumstances
A lot can happen between drawing up a real estate contract and handing over a fully signed contract. Relationships can start and end, investments can go awry, and people can simply change their minds. Any big life changes can affect the sale of a home while it’s in escrow.
Zoning or zoning compliance issues
If the title search shows evidence that the home was built outside the property’s allowance, it would give any buyer serious pause. You don’t want to inherit an illegal decision for which you’ll be liable in the future. It also ensures that the drawn borders of the property are what’s on record for the plot(s) of land being purchased.
Difficulties in obtaining required permits or inspections
Many buyers will make the decision to buy a property based on the idea that they’ll make changes to it – improvements, new construction, extensions to the house, etc. They could change their minds if permits aren’t approved to make that happen.
Challenges in resolving any disputes or disagreements between the parties
Any number of disagreements can arise between buyer and seller. The purchase and sale of a home can bring out high emotions, especially when the seller signs on a home they’ve lived in for many years. It could delay the deal if they can’t come to an agreement where all parties agree.
Lengthy waiting periods for government approvals or certifications
Unfortunately, bureaucracy is a common delay in many home sales. Deeds need to be recorded, affidavits signed, and inspections made. If the local government is experiencing a backlog or is understaffed, it could significantly delay proceedings.
Six Benefits of Attorney Review
Avoiding Costly Mistakes
The biggest benefit you can get by consulting an expert is saving money. While it may seem like paying for a real estate attorney is an additional cost, having an expert in your corner who understands the contract’s essential terms and has experience in the area could ultimately save you on factors you might have overlooked on your own.
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Enhancing Negotiations
When experienced lawyers review a real estate contract, they understand where there might be room for negotiation. While the purchase price might not change (unless there’s a major discovery during inspection), there are other areas where the buyer and seller might have room to negotiate.
Reducing Risk: Prevention of Unforeseen Issues
Experience is the name of the game when it comes to foreseeing potential issues. If an attorney disapproves of any of the seller’s stipulations or suspects that there is malicious intent, he or she might have suggested revisions to the contract before proceeding.
Protecting Buyers
A buyer’s priorities are to uncover any hidden pitfalls that might arise in the future. The buyer wants to be aware of any shortcomings on the property and whether they’re worth the risk of ownership. The attorney review period allows a deep dive into the nitty-gritty of the property’s history, which protects the buyer from future issues.
Protecting Sellers
A seller’s priorities are, first and foremost, to get the most value out of their property. While there might be other sentimental reasons why they do or don’t sell to a particular buyer, the bottom line matters most. The seller’s attorney helps address any complaints the buyer might have during this period and protects the seller from underselling their home.
Ensuring Compliance with Laws and Regulations – Access to Expert Legal Advice
While most contracts can feel impenetrable, your attorney should help translate the legalese into plain language. This ensures that you understand any laws pertaining to the property and are not accidentally violating any regulations.
Conclusion
While purchasing or selling a home might feel overwhelming, having an attorney to guide you through your real estate transaction will help put your mind at ease. During the attorney review period, the lawyers are doing what you pay them to do: make sure the real estate contract reflects your best interests before you reach the closing.
This includes ensuring that the property is in reasonable condition and complies with government regulations, that the contract is completed properly, its terms are reasonable and agreed upon by all parties, and that the buyer and seller are protected from future problems.
Here you can learn more about what happens after the Attorney review.
Final Thoughts
Given that real estate contracts in Illinois are routinely executed without much attention to detail, the attorney review clause is vital to ensure that the lawyers have an opportunity to amend the terms so that the buyer’s and seller’s interests are truly protected.
Adler & Herbach is proud to service Chicagoland real estate closings for both buyers and sellers. For more information, please call us at (847) 318-3770 or fill out our web form here.
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