Oklahoma Real Estate Transactions for Out of State Buyers and Lenders
The internet has expanded the playing field for real estate investors. Potential buyers for investment property are not limited by geography. Listings can easily be shared using the internet and sellers can advertise their properties to buyers in different states or even different countries. This is great for investors and the real estate market, but as a real estate and title attorney, I often find that out of state buyers and lenders are not familiar with the nuances of Oklahoma real estate transactions.
Property and real estate law is generally state specific. The most experienced real estate investor in New York or Florida might feel lost when buying or lending against property in Oklahoma. My goal in this post is to give a basic crash course on the nuts and bolts of how real estate closings work in Oklahoma and to help you determine when you need to retain a real estate lawyer for your Oklahoma transactions.
In many other states, real estate attorneys double as closing offices. In those states, your real estate attorney will handle all aspects of the closing. If you’re coming from one of those states, things work differently here. In Oklahoma, your closing is usually handled through a title and escrow company. In large part, this is because of how title insurance is handled in this state. Oklahoma law requires a certified Abstract of Title behind every policy of title insurance. Because of this, many large national title insurers operate as abstractors, closing offices, and title insurers in the Oklahoma City and Tulsa metros. Both metros also offer many locally owned alternatives to the large corporations. In the rural parts of Oklahoma, you’ll usually find one or two local abstract companies per county which write title policies as agents of the larger national insurers. A title company operating in Oklahoma City, could close a transaction on property located anywhere in the state; however, the abstract used for that closing will come from a company with a title plant in that county.
In most of Oklahoma, the general default practice is that the buyer gets to choose where the transaction will close. In reality, other factors will influence this. In my experience, institutional lenders like mortgage companies and banks, will direct their borrowers to closing companies they have worked with in the past. Likewise investors and realtors may have had positive experiences with one or another of the title companies and could try and steer their buyers toward those companies. As long as there are no kick back agreements, that is usually fine. (Note: The Tulsa Metropolitan market is unique in that it allows for split closings, where the buyer may execute their documents with company X, the seller with company Y, and even the lender could choose a third company for their part of the transaction. This is not always the case but it can happen).
If title companies handle the nuts and bolts for Oklahoma closing, is there any need for an out of state buyer or lender to retain an Oklahoma real estate attorney to assist with the transaction? You may still need to talk with an Oklahoma real estate attorney in the following scenarios:
Understanding and Negotiating the Contract – Oklahoma’s Real Estate Commission has promulgated a series of standard forms. In most residential transactions, these forms will work just fine; however, when dealing with commercial real estate or negotiating seller financing as part of the contract, lawyer drafted contracts will often replace the standard contract forms and you should retain local real estate counsel. The complexity of the contract and how much time respective counsel spend negotiating back and forth will largely be a question of how much earnest money is being put down. If a buyer only risks losing a $2,500 escrow deposit, then it doesn’t make much economical sense to pay an attorney by the hour to develop the strongest possible contract for securing return of that money. However, if a buyer is putting down $50,000, then it makes sense to have a more complicated contract that allows clear exit strategies from the transaction with return of escrow money if due diligence reveals that the property is not as promised.
Creating Legal Entities – Many investors do not want to own title to real estate in their personal names. It’s easy to register a new LLC or other entity with the Oklahoma Secretary of State, but in addition to seeing that registration, the title company or lender is going to want your entity’s operating agreement or by-laws. Having reviewed countless LLC operating agreements when I was a lawyer for a title company, I know how to avoid the drafting errors and ambiguities that delay closings.
Due Diligence – In commercial transactions or large multi-family residential complexes, there can be, depending on the contract and the buyer’s willingness to extend funds and time, extensive due diligence prior to closing. Some of this can be handled by your Oklahoma real estate professional or other agent, but you will want an Oklahoma real estate attorney as part of your team for those due diligence matters that require legal analysis or understanding.
Document Drafting - The attorneys for the title company are there to manage risk for the title company and see to its best interests. This means that while the title company might require you to get a private roadway easement, an LLC operating agreement, or other title curative document, they usually aren’t going to offer to draft them for you. As a former Senior Underwriting Counsel for a major title insurer, I know what they’re looking for and I’m experienced with the drafting document quickly to prevent delays to your closing.
Foreign Ownership – The details of this will require their own blog post in the future, but for now, if you are not a US citizen, there are state law restrictions on alien ownership of real property in Oklahoma beyond the Federal FIRPTA requirements. In short, if you are not a US citizen or planning to permanently relocate to Oklahoma, you need to have a discussion with an Oklahoma real estate attorney about the legal risks of investing in property here and/or discuss strategies to create legal entities domiciled in Oklahoma that could own the property for you.
Oklahoma Mortgages – Many other states use an instrument called a “Deed of Trust” to secure and attach a Promissory Note to real estate. Oklahoma is a mortgage state. I’m happy to help draft and provide mortgage forms that work in Oklahoma.
Seller Financing – Title companies are not going to draft or review your Contracts for Deeds, Lease Options, and other types of seller carry back financing. I have experience with and am happy to help with your seller financing documents.
Counsel – If your deal is simple enough, you may not need the assistance of a real estate attorney for your Oklahoma transaction; however, even if legal services are unnecessary, I can still provide you with peace of mind. I’ve worked with several out of state investors on purchasing their first Oklahoma property. With payment of a retainer, I can be available to answer all of your questions as they arise, explain the peculiarities of the Oklahoma process, and make you feel comfortable each step of the way as you head to the closing table.
Basic Closing Services – While Oklahoma real estate attorneys do not focus their practices around in-house closings, we can still facilitate a closing for our clients in certain circumstances. Our firm will assist with closings where the parties do not require title insurance and the transaction does not require TRID/RESPA disclosures.
These are all general comments on the most common of Oklahoma real estate transactions. Your particular deal could have its own unique issues that do require the attention of an attorney. This post has been meant as a general guide to the framework of an Oklahoma real estate transaction for people completely unfamiliar with them and should not be considered legal advice for any particular issue or legal problem you are facing. If you’d like to discuss your Oklahoma real estate law question with me, please send an email to ryan@gossenschaller.com and we’ll set up a time to chat!