Due Diligence Is The Legal And Financial Research And The Document Inspection That Your Attorney Conducts Before You Sign The Contract To Purchase A Property In Nyc. Your Attorney Will Prepare A Due Diligence Report That Indicates Whether There Are Any Legal Or Financial Complications In The Property Or If It’s Clear For Purchase.
When You Are Done Negotiating The Price With The Seller, And They Accept Your Offer, They Will Provide You With The Deal Sheet, Which Is A Legally Non-Binding Document That Summarizes The Terms Of The Deal That You And The Seller Agreed Upon. Once You Have The Deal Sheet, Your Lawyer Can Start The Due Diligence Process.
What Does Due Diligence Entail?
The Due Diligence Process Is Thorough And Requires Your Attorney To Go Through Several Financial And Legal Documents Associated With The Property You Are Buying. If You Are Buying A Condo Or An Apartment In A Co-Op As Opposed To A House Or Building, The Lawyer Will Look Into More Than Just The Unit You Are Purchasing; They Will Also Look Into The Building’s Documents And Financials.
The Process Entails The Following, But Not Necessarily In This Particular Order:
- Checking The Title Of The Property And Ensuring That The Seller Has Full Rights To Sell And Officially Transfer The Property To You. Things Like A Mortgage On The Property (Which Means That The Mortgage Lender Can Claim Partial Ownership Of The Property) Or A Property That Is Being Contested In A Divorce Make The Title “Unclean.”
- Ensuring The Property Is Up To Code And Is Not Violating Any City Codes. This Includes Looking Into Previous Violations And Finding Out Whether They Have Been Settled With The City Or Not.
- For Most Co-Ops And Condominium Buildings, The Attorney Will Look Into The Financials Of The Building (Going Back At Least Two Years). This Also Gets You Useful Information Like When The New Roof Was Installed And The Last Time The Hvac System Was Replaced, So You Can Figure Out If A Major Expense Is Coming.
- Most Attorneys Also Go Through The Minutes Of Co-Op And Condominium Board Members’ Meetings To Uncover The Usual Problems Related To The Property’s Financials And Maintenance.
- They Identify Possibilities Of Mortgage Or Value Fraud In The Transactions.
- They Go Through The Offering Plan (That Comes With The Deal Sheet), Especially For New Buildings, To Uncover Things You Might Have Missed When You Visited The Property.
- They Check For Sublet Policies And Alteration Rules. For Co-Ops And Condominiums, They Also Contact The Department Of Buildings (Dob) To Figure Out If There Are Any Open Permits For The Building.
- For Further Information, Your Attorney Will Also Send A Long And Detailed Questionnaire To The Property Managers.
What Items Are Needed To Do Due Diligence?
The Items Required For Due Diligence Often Rely Upon The Age Of The Co-Op Or Condominium You Are Buying The Apartment In. If It’s A New Building, The Main Item Would Be The Offering Plan. It’s An Extensive Document That’s Provided By The Builder To The Building Management Or Owners And Passed To The Potential Buyers. With This Document, Attorneys Mostly Try To Identify Things That Are Out Of The Ordinary.
For Older Buildings, Attorneys Focus On The Following Items:
- Meeting Minutes: They Give Information On Things Like Capital Improvements, Both In The Past And In The Future. So As A Buyer, You Will Have A Good Idea As To How Often You Will Need To Pay For Improvements Other Than Routine Maintenance.
- Questionnaire: A Comprehensive Written Questionnaire Your Attorney Gives To Building Managers, Who Sometimes Charge Money To Fill It Out.
- Financial Documents: They Reflect How Efficiently Property Managers Use The Maintenance Fund They Collect And How Often Residents Have To Pay More For Capital Improvements. It Can Also Tell You How Often Maintenance Is Increased And By How Much.
- By-Laws: Specifics Like Subletting, Pet Policies, Alteration Policies, Etc.
What Can Go Wrong If Due Diligence Isn’t Done Properly?
If You Skip Due Diligence Or If It’s Not Done Properly, You May Find Problems When Completing The Deal And Even After You’ve Purchased The Property.
If The Property Has Any Code Or Zoning Violations That You Missed, You Might Have To Pay For Them. Inefficient Management Or Major Financial Problems Might Indicate That You’ll Have To Pay A Significant Amount In Maintenance Fees.
How Long Does It Usually Take?
The Due Diligence Process Usually Takes Somewhere Between Five To Seven Business Days. If The Management Of The Building You Are Trying To Buy Your Apartment In Is Busy Handling Multiple Sales At Once, Is Non-Responsive, Or The Board Is Engaged In Other Projects Like Property Improvements And Renovations, It Could Potentially Take Weeks.
Many Of The Questions You Should Ask Before You Buy An Apartment In Nyc Are Answered During Due Diligence, So Make Sure You Work With An Attorney You Trust.
If You Need Recommendations For A Real Estate Attorney, I’m Happy To Provide You With One.
