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The Upside of a Down Economy

April 12, 2011

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Thomas P. Martin

While the economic downturn in 2008-2010 created significant difficulties for many people related to their real estate holdings (dramatic losses of equity, difficulty in selling and financing or re-financing houses and, in some cases, short sales or mortgage foreclosures), it also has presented opportunities for prospective purchasers to purchase real estate at prices considerably below historic market values.

These lower values combined with certain tax credits (e.g., first-time home buyer credit and energy credits) can be enticing. However, if you or someone that you know is considering a purchase of real estate, particularly a purchase from a short-seller or foreclosing mortgagee, there are several points to keep in mind to prevent that great deal from turning bad.

First of all, you should not sign a purchase agreement without having it reviewed by experienced legal counsel. A review of the purchase agreement can address critical issues related to the type of deed and title insurance you will receive, the allocation of various costs and taxes, inspection rights and other contingencies, the amount of the deposit and the rights of the parties upon default. Also, the points raised may provide you with additional leverage in your negotiations of the price and terms.

Secondly, you should insist on receiving an owner’s title insurance policy without standard exceptions – a form of policy which will cover you in the event of a loss resulting from certain matters not appearing in the public records (e.g., unrecorded easements, construction liens and leases).

Thirdly, you should retain a qualified inspector to thoroughly inspect the property for any physical defects.

These points are important in any purchase transaction but are particularly important when the seller is a short-seller or lender looking to dispose of the property at a low price in exchange for minimal, if any, responsibility for property problems (physical defects, title defects, etc.).

If you are contemplating a purchase of commercial, industrial or residential real estate in the near future, we urge you to contact one of the members of our Real Estate Practice Group to assist you.