By Cynthia Neiditch: Address potential tax, payoff and water/sewer adjustment issues to ensure an efficient closing

In the last issue of The New York Real Estate Journal, my colleague, Philip Narotzky, spoke about "Let's close the deal!" Naturally closing the deal is paramount since in most cases it does represent the moment at which most of the parties, e.g.: the attorneys, the real estate and mortgage brokers, the title company and title closer, are paid for their work in the transaction. Therefore, it behooves those parties to ensure that the closing itself be streamlined for expedition and efficiency, as the more closings one can book the more revenue one can generate, not to mention the better the overall experience for and greater referral potential from the buyer and seller. Further, an efficient closing will finalize the deal at the table and will not require the attorneys to re-open their files afterward for any survivable matters, which sorely cuts into their profit margin on the deal. Three areas in which I have seen potential problems in these regards are future real estate tax payments, credit line mortgage payoffs and New York City water/sewer adjustments. In figuring adjustments for real estate taxes it is important to also consider the payment of a future real estate tax due imminently after the closing, especially when the real estate taxes are being paid by the seller's mortgagee. For example, let's say you're closing on a New York City property on September 20 and the next real estate tax is due October 1. The natural inclination is for the seller's attorney to view this tax as a post-sale event that is the buyer's burden not his/her client's...which is technically true as the lien date in NYC is October 1. However, often overlooked is the fact that the seller's lender, who will be paid off within a few days of the closing by way of the title company, either may have already made or be in the process of making that disbursement from its escrow causing the tax to be paid even after they receive their payoff funds. In that case, if there are insufficient monies in the seller's escrow account to cover the payment, the payoff will be short-but even if not, the result will be a post-closing adjustment several weeks or months later. Remember you're dealing with two behemoths, major lending institutions and the NYC Department of Finance, neither of which can stop a single tax payment on a dime nor instantly determine whether it has posted to the taxpayer's account. It would be far more prudent, albeit somewhat distasteful in principle, for the seller to deposit the future tax payment with the title company and take the off-setting credit from the buyer at the table. Credit line mortgages pose potential problems with their payoffs not associated with conventional mortgage payoffs. Despite what lenders may advise when a payoff demand statement is requested of them, most will NOT immediately freeze a credit line account on verbal or faxed demand at the closing table (usual turnaround time is 24-48 hours, ironically contrary to the loss of a credit card which somehow they can manage instantly!). Lenders require a separate letter from their borrower usually 2-3 weeks in advance setting forth their request that the line be blocked, not closed, from future advances so that a subsequent payoff demand letter can be relied upon without fear of additional monies being advanced. Note that the banks draw a distinction between freezing/blocking and closing the account, the latter of which they will not do until they have received payoff in full. If this suspension of a credit line mortgage is not made prior to closing, it may result in the title company's insistence of escrow for at least the entire amount of the available credit until the bank has confirmed receipt of the payoff, which is especially onerous if the line has a very low balance in relation to its limit. Lastly, don't be misled by the nomenclature of NYC Department of Environmental Protection Agency's (DEP) "actual" water/sewer meter readings for figuring your adjustments. DEP will not afford "innocent buyer" protection from reversed charges, revised billings and unofficial payments unless it has received the request for and performed its title meter reading at least 30 days prior to closing. Water/sewer charges are based on usage and even if the property has been vacant for some time prior to closing, there may be significant billing accruing due to running toilets, leaking faucets and/or burst pipes, especially in winter months. Avoid having to hold significant sums in escrow for lengthy periods by ordering this title meter reading immediately following your contract signing. Cynthia Neiditch is vice president at Counsel Abstract, Inc., New York, N.Y.