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(Although written as an article for the Clatsop Association of Realtors in 1998 to assist them in their work, the accompanying checklist has general applicability for all parties to the transaction including individual buyers and sellers.)
By: Charles A. Hillestad
Airline pilots always complete a pre-flight checklist before taking off and complete another after landing. They do so without exception because there are just too many things that could go wrong and too much at stake to rely on just memory or habit. Besides, the things that become "routine" are the very things that tend to be forgotten in the rush of the moment. Pilots and the FAA recognize that if something has been done hundreds of times before, the mind can play tricks and convince itself the task in question was already done this time too.
Although lives are not at risk as they are in flying, the sale of real estate is now sufficiently complicated and sufficient money is involved that it would behoove a careful practitioner to develop some sort of uniform checklist and religiously follow it during every transaction. In fact, the file on each particular matter should never be put away until it is confirmed all appropriate boxes on the checklist have been checked or determined not to be applicable.
While we have very good title companies around here, it is seldom a wise idea to totally rely on someone else to be doing your duties for you. Keep in mind, it's your license. It's your clients. It's your wallet. Who better to protect them than you? Besides, the more sets of eyes scrutinizing the details, the less likely it is something will be overlooked.
Keep in mind if the deal does not close for some reason, you do not get paid even if it was the "fault" of someone else. Moreover, if something goes seriously wrong, you very likely will be dragged into the resulting conflict. Everyone gets tainted when something goes wrong. I cannot tell you the number of times licensee clients have complained to me that what happened in various transactions was not their responsibility. This is usually being said as they are writing out a check for a retainer fee to commence the legal defense effort on their behalf.
As a result, you not only need to do your own job, you need to watch what others are doing and make sure they do their job as well. Anything less is akin to stepping up to the craps table and rolling dice. You may win, but why are you "gambling" in the first place with something that important to you and your clients?
Therefore, not only fill out a checklist yourself for a particular sale, share a copy with others involved. That way it gives the other participants notice of at least your understanding of who is supposed to be doing what. Although not necessarily binding on others, it does increase the probability that potential quarrels over responsibility will be uncovered early when it is easier to resolve the dispute amicably. It also serves as a subtle reminder to the others as to things they might have otherwise forgotten accidently.
If nothing else, by asking the questions in advance, it shows your concern for the welfare of your clients, your attention to detail and evident professionalism, each of which should increase the chances you will be chosen to be involved in future transactions.
Attached is a suggested uniform checklist designed for use by brokers, agents, buyers, sellers and closing agents alike. Upon reading it, some of you might say that it mentions duties that do not involve you directly. Some are customary tasks of escrow closing agents, some are tasks of the principals, some are tasks of their advisors. That's true. You will not need to do yourself every single item on the checklist, but it functions as a reminder to all parties of all the various things that might need to be done by at least someone.
Feel free to use this particular list or develop your own. But, in any event, create and use some sort of similar checklist if you want to help decrease the odds of something going wrong on one of your sales.
Good luck.
A SAMPLE CHECKLIST FOR REAL ESTATE CLOSINGS (Listing agreement, pricing information and marketing are assumed to be in place already)
Initial Date:
Subsequent Updates:
This Checklist Prepared for the Benefit of:
The Property Description:
Preparation to Draft an Offer
(In each case, delineate who is responsible for obtaining or accomplishing the item or activity and whether it was fully accomplished and appropriately distributed.)
1. Order or review a "trio" from the title company to determine the correct ownership and legal description of the property being considered for purchase or sale. Such information is usually available for free and typically consists of the last deed in the chain of title, the latest tax statement and a plat map of the immediate area.
2. Order or review the tax records if not included in the trio to determine the account numbers which are part of the legal description and to insure all the taxes have been fully paid to date on both real and personal property taxes, if any.
3. Determine whether allocations of the purchase price are needed or desired, especially if a business is a part of the transaction. Allocations can include separating the price among categories such as land, buildings, furniture, fixtures, equipment, crops, inventory, accounts receivable, accounts payable, trade secrets, covenants not to compete, etc. It can also include separating the portion of the property that are residential and those that are commercial both are intermixed. Allocations can have significant tax consequences and therefore should be done after consultation with an accountant.
4. Prepare or review the contract offer.
5. Set up or review the title company escrow account for the earnest money confirming where it is held, circumstances necessary for refundability, and whether it will earn interest while in escrow, etc.
6. Prepare or review brokerage agency disclosures and conflicts of interest, if any.
7. Other drafting matters?
Due Diligence and Contingency Period
(In each case, delineate who is responsible for obtaining or accomplishing the item or activity and whether it was fully accomplished and appropriately distributed.)
8. Order or review a preliminary title binder for the real estate. When doing so, determine if there is a discount due to a recent prior sale, if it will be just for the new buyers or also for lenders, if it is to be standard coverage or extended, if there are to be any special endorsements, etc.
9. Order or review copies of all documents mentioned in the title binder as exceptions to title insurance coverage which might include easements, covenants, conditions, reservations, restrictions, patents, liens, encumbrances, leases, plats, etc. Don't forget some things may not show up in normal title searches. Water rights, encroachments, changes in water courses, recent mechanics liens, adverse possession rights, growing crops, etc. are among things that might not appear. Determine whether those require different types of investigations.
10. Order or review a UCC search on the personal property if any is being sold as part of the transaction.
11. Order or review copies of all documents mentioned in the UCC search results which might include liens, encumbrances, leases, etc.
12. Order or review existing, new or updated surveys re size and location. It could be for boundary, improvements, topography, subdivision plat, etc. It may or may not have permanent corner pins placed.
13. Order or review existing or planned improvement plans, if any, which could include building plans, site plans, "as built" records, service locator maps, environmental studies, prior inspection reports, appraisals, surveys, plats, soil tests, construction contracts, architect contracts, lien notices, lien waivers, etc.
14. Prepare or review representations regarding physical condition which could include possibly mandatory disclosures, disclaimers, lead paint notices, etc. depending on the type of property.
15. Order or review existing or new physical condition inspections, reports and estimates, if any, preferably by licensed and bonded inspectors to investigate the condition of appliances, equipment, fixtures, software, structure, dry rot, insects, plumbing, electrical, mechanical, HVAC systems, well, septic, utility lines, wetlands, flood plain, drainage, crops, trees and vegetation, soil, geologic hazards, asbestos, lead paint, underground tanks, radon gas, "sick building" syndrome, environmental review of records re past uses/contamination, easements, access to public roads, ADA access, view rights, existing lawsuits, written warranties, guarantees, etc.
16. If a business is part of the sale, prepare or review existing business data preferably with assistance of an accountant. It could include tax returns, rent rolls, profit/loss statements, inventory, service contracts, marketing contracts, employment contracts, employee records, advance orders and reservations, outstanding gift certificates, sales/lodging/OSHA and other government required reports, pension plans, accounts receivable/ payable, leases, existing debt, wraparound debt, client lists, delinquencies, etc.
17. Obtain or review approvals from existing landlords, lenders, tenants, employees, vendors, suppliers, artists with copyrights, shareholders, etc. that might be related to the transaction which could include subordination agreements, nondisturbance agreements, attornment agreements, estoppel certificates, waivers, property management agreements, tenant notice letters, releases, fire/burglar alarm contracts, boiler inspection contracts, contract amendments, etc.
18. Obtain or review governmental and non-profit association approvals and restrictions which could include violation notices, zoning confirmation letters, building dept, health dept, planning dept, design review committee, signage, parking, access, licenses, permits, certificates of occupancy, homeowner association approvals, assessment verifications, traffic counts, comprehensive plan map, known future or speculated plans of city/country/ state/department of transportation/neighbors, etc.
19. Obtain or review financing which could include loan applications, credit reports, lender estimates, interest rate locks, appraisals, good faith estimates, conditional approvals, payoff statements, etc.
20. Prepare or review water rights, if applicable preferably with water law specialist.
21. Prepare or review notices re contingencies. Have they been satisfied, waived, failed, etc.?
22. Prepare or review any necessary contract modifications which may include extensions, amendments, etc.
23. Other due diligence matters?
Preparation for Closing (In each case, delineate who is responsible for obtaining or accomplishing the item or activity and whether it was fully accomplished and appropriately distributed.)
24. Order or review updated title search.
25. Confirm type of title necessary or desired which might include sole ownership, tenants in common, tenants by entirety, right of survivorship, trusts, partnership, corporation, LLP, LLC, government agency or subdivision, etc.
26. Prepare or review real estate transfer documents. If a deed, then is it general warranty, special warranty, bargain and sale or quit claim? If a contract for sale, then is it a memorandum of contract, and escrow agreement for deed, etc.? In either case, insure documents have tax numbers, statement of the true amount of consideration being given, statutory disclaimers, historical disclaimers, exhibits, notarizations, etc. as appropriate.
27. Prepare or review special aspects of real estate transfer documents, if any, which may include easements, licenses, reservations, restrictive covenants, future interests, etc.
28. Prepare or review personal property transfer documents, if any, which may include a bill of sale, vehicle title, trailer title, etc.
29. Prepare or review bulk sale requirements if a business if the state still has such laws.
30. Prepare or review appropriate assignments or terminations of special types of property, if any, particularly if a business is part of the sale which may include warranties, leases, rents, rent deposits, assumed names, trademarks, patents, copyrights, art work, logos, contracts, utility deposits, telephone numbers, web pages, e-mail addresses, software, manuals, licenses, PO boxes, mailing lists, memberships, advertising agreements, insurance coverage, etc. when applicable.
31. Order or review insurance binders which may include hazard, liability, flood, earthquake, business interruption, workmen's comp, key man, additional insured parties, etc.
32. Prepare or review closing statements and figures. Prorate/adjust/credit/debit for earnest money, recording costs, filing fees, rents, utilities, government and special district tax assessments, forest change of use tax recapture, condo/homeowner association assessments, improvement bonds, escrow fees, insurance, gift certificates, advertising contracts, management contracts, service contracts, wages, memberships, deposits, vacation/sick days, pension plans, franchise, vending machines, allowance for bad debts, refunds, petty cash, commissions, prepayment penalties, lien payments, transfer taxes, discount points, origination fees, attorney fees, premiums, etc..
33. Notify utility and service companies to read meters and make final bills which may include telephone, cable, satellite, gas, oil tank, electric, water, sewer, trash, laundry, housekeeping, mail, pest control, vending machines, alarm and security companies, boiler inspectors, landscape, etc.
34. Prepare or review closing and escrow instructions which may include post closing collection escrow setup, if appropriate, for future payments and holding deed or other sale documents.
35. Prepare or review other closing documents which may include seller affidavits, SSN #, tax ID#, IRS 1099, foreign party, wired funds instructions, surrender and releases of existing encumbrances, trust deed reconveyances, financing statement releases, etc.
36. Review amount and type of payment funds which may include certified check, cashier's check, wire transfer, etc.
37. If a corporation or other business entity is one of the parties, prepare or review corporate documents which may include a certified copy of articles or partnership agreement or trust agreement as appropriate, certificate of good standing, resolution approving sale by requisite supermajority of shareholders if substantially all corporate assets are being sold, etc.
38. If a particular party won't be at the closing, prepare or review appropriate absentee documents which may include power of attorney, corporate resolution, etc.
39. Prepare or review loan documents, if applicable, which may include assumption, note, trust deed, mortgage, deed of trust, assignment of rent, security agreement, financing statement, collateral assignment, personal guarantee, opinions of legal counsel, truth in lending disclosures, amortization schedules, coupons, etc.
40. Prepare or review new side agreements, if applicable, which may include non-competition agreements, non-disclosure agreements, settlements, employment agreements, consulting agreements, etc.
41. Prepare or review updated affidavit re no material changes prior to closing, if applicable.
42. Confirm "punch list" promised repairs, if any, have been made.
43. If recent construction, order or review lien waivers.
44. Transfer physical items which may include keys, garage door openers, security codes, etc.
45. Other closing preparation matters?
Post Closing Wrap-up
(In each case, delineate who is responsible for obtaining or accomplishing the item or activity and whether it was fully accomplished and appropriately distributed.)
46. Review the title policies issued.
47. Review the insurance policies issued.
48. Review the recorded ownership documents which may include the deed, the memorandum, etc.
49. Review recorded loan security documents.
50. Insure escrowed funds and other deposits released.
51. Prepare storage files for documents to be retained which may include categories such as listing agreements, offers, counteroffers, rejections, acceptances, contracts, closing documents, conveyance documents, exhibits and addendums and other contract related materials showing signatures and initials; faxes, e-mail printouts, drafts, estimates, recommendations, notes, diaries, logs, letters and other correspondence; marketing samples; checks and deposit slips; accumulated due diligence materials and findings; and forwarding addresses and phone numbers of parties.
52. Insure everyone got all the signed copies and/or original they were supposed to receive.
53. Other post closing matters?
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