In our previous episode, we spoke about the seven steps in the “Housing Journey”, the fifth step being “Closing”. For those who are buying a home in Israel, a major part of this step involves the negotiations and due diligence that your lawyer manages. We sat down with Jane Olman of Rachlin-Olman Law to better understand this process and to get some important insights.
Jane explained that closing in Israel doesn't really exist in the same way that it does in America, for instance, where you pay the money and get keys and title all at once. In Israel, the process just doesn't work like that. When you sign the sale contract you give your initial down payment on the home. Against that payment, you get a security on the property which secures your rights while you make further payments. Oftentimes the payments for the purchasing price can be spread out over 3, 6, 9 even 12 months. During this period your rights are secured by the lien that you have from the initial payment and the "closing" which we would call “transfer of possession”, is only at the end of the process. So against the very last payment that you're making you would get keys and then the documents you need to transfer the title. This is very different than in the US because title gets transferred actually after you already have taken possession of the house, usually a few months after. So it's a much more long, drawn-out process which sounds crazy to people outside of Israel, but there are mechanisms in place to secure your rights.
From the time one has agreed with the seller on a price until you actually get to that contract signing the process is kind of like a series of parallel tracks. Imagine one of those circus tricks where they have the spinning plates in the air and you get all your plates spinning at once and do your checks in tandem. The first thing is that we get a draft of the contract. I would review the contract and negotiate the actual wording of the contract - the declarations, things like that. The second most important thing that happens in parallel is that your attorney will check the title. In Israel, there's no title insurance and your attorney serves that function. This is another reason why you need to use someone really experienced, because title in Israel can be registered in more than one government body or a combination thereof, depending on where the property is located. So the checking of title is the second most important step. The other aspects of due diligence which are performed are structural inspection, planning inspection, appraisal for value, making sure that you have your financing... All of those kinds of things are done before you sign a contract in Israel because there are no contingencies for inspection, financing, or anything like that. All your due diligence is done before you sign.
Hillel: On average, how long would you say it takes from the time that we've agreed, "Okay, we're going to buy a place at this price" until that contract is signed with all the different things you spoke about?
I would generally say that the average is a month. I have deals that I sign within a few days, I have other deals which take a couple months, three months, even sometimes longer depending on how complicated it is. It also depends on the specifics of the buyer. For instance, someone who is having me represent them and they're not in Israel. I need a variety of documents: power of attorney, and a few other documents that have to be signed and notarized and apostilled or signed at the consulate outside the country. Especially today, during the period of Corona, that's an important difference regarding the timing because everything is moving much more slowly outside of the country. So we have to definitely allow for that.
Hillel: That leads me to my next question: What's the biggest change you've seen due to the pandemic?
The differences that we see with Corona really have to do with timing. There’s also a lot of apprehension about unknown complications that come up. So we have a lot more, "What if I can't get to the bank?", "What if I can't
move out on time?" "What if I can't get this document because the government isn't functioning?" or "What happens if I'm in quarantine?" "What happens if we get put in lockdown?"
So we have started putting in what we affectionately call 'Corona Clauses' which allow for delays, honest delays, justifiable delays. If, for instance, someone is quarantined or locked down and they can't get to the bank
to make a payment, or if the bank suddenly shuts down and they won't make their mortgage payment those kinds of things. There are differences of opinion and also there's starting to be court cases regarding whether or not these kinds of delays are considered "Act of God", and justifiable. The main wisdom really is if you can show that it was really unavoidable then it's considered a justifiable delay. However, some of the bigger contractors have been trying to use this as an excuse for huge delays in transfer possession and that's not really going to fly. But again it is unknown territory and we're going to have to see how it plays out.