July 19, 2024

politics of law

Politics and Law

Closings, Deeds, and Restrictive Covenants – Does the Buyer Know What’s Being Bought?

4 min read

Disclaimer: This article is not intended to be legal advice. Legal advice depends on each and every person’s particular circumstance. If you have a related issue, you should consult with your lawyer who practices law in your state regarding your particular circumstance. This article is for informational purposes only.

The title agent led us into a large and beautiful conference room. My client sat down first. I sat down in the chair directly across from her. After flashing me a nervous smile, she placed her arms on the shiny, cold conference room table and clasped her hands together, intertwining her fingers.

She was clearly nervous….

And she should have been nervous; this was her first time buying real estate. Additionally, she was purchasing this home during the real estate boom-when the real estate market was its craziest. More importantly, she was purchasing this home directly from the builder-and she agreed to allow her builder’s mortgage company to finance the purchase of the home and her builder’s title company to close the real estate deal-which usually complicates matters for unsuspecting home buyers.

Unfortunately, I did not represent her at the time she signed her real estate contract since she hired me only a few days before the closing. (For the record, I usually advise most buyers to obtain their financing and title/closing agent services from a party unrelated to the builder).

The closing agent brought in a stack of documents for my client’s signature. He placed the documents in front of me, and then he left the room, closing the door behind him. Of course, I was there to review each document for my client to advise her before she signed any more documents. Most of the documents were ok.

However, there was one document that caused me serious concern: The Deed.

“Did anyone tell you that if you sold your home within the next 4 years, you would have to pay the builder a penalty of 15% of the sales price?” I asked her after reviewing her deed. I was surprised to see such a provision in the deed since I did not recall seeing such a requirement in the real estate contract a few days before.

“NO!!!!!!” she responded quickly. She was, obviously, surprised by my question.

“Are you OK with paying the builder a 15% penalty if you sell the house within 4 years?” I asked her, looking up from the deed.


“Therefore, I am advising you not to sign any of these closing documents and to walk away from this closing unless the builder agrees to take these provisions out of your deed….”

I called the title agent back into the room and informed him that the closing would not take place unless the builder agreed to change the deed. The title agent went back to office. He quickly returned with a revised deed.

Thereafter, we closed the real estate deal.


Do you understand your deed? What about your restrictive covenants? Do you even know what restrictive covenants are? Do you know to demand to see all of your closing documents before the closing?

Would you believe that most buyers do not? Would you believe that attorneys who do not practice real estate do not?

As a result, like the seller in the above scenario, sellers can easily spring substantial surprises on potential buyers right at the closing table. This, obviously, puts sellers at a substantial advantage.

What’s worse is that even if the buyer catches the surprise, the seller can threaten to keep the buyer’s deposit if the closing does not take place that day. This puts the buyer in an obvious dilemma. Since real estate deposits tend to be substantial, most buyers feel as if they have no choice but to sign the closing documents.


Buyers must attempt to protect their interests in their closings:

  1. Consider asking your closing agent to provide you with all of your documents at least 48 hours before the closing.
  2. Consider reading all of your documents. If you don’t understand something, consider asking an appropriate person to explain it to you.
  3. If you see something suspicious in your closing documents, consider consulting with a lawyer in your jurisdiction regarding the matter.
  4. If attempting to understand the closing process, documents, and/or concepts overwhelm you, consider hiring an real estate attorney to represent you in the transaction.
  5. In many jurisdictions, the hiring of a real estate lawyer to solely represent you in the closing process usually costs less than $1,500.00-which is less than one month’s mortgage payment for many people. This is a small investment to protect the investment you’re making in your new home.

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