March 1, 2015
Closing Process
What does “closing,” on your house mean?
Closing is a term used for the point in time at which the title to the property is transferred to the buyer and, generally, a mortgage (or “deed of trust”) is given by the buyer/borrower to the lender.
Buying a house is an exciting time and the more you know about the process, the more relaxed you’ll be going through it. Keep reading, and we’ll walk you through what the closing process really means.
Some information about the costs associated with closing on your home should be provided to you before you put a contract on a house. If you are obtaining a loan to purchase the property, your lender has three days from the time of the loan application to provide you with a Good Faith Estimate of your loan costs so there are no surprises about costs.
Once the seller accepts your purchase agreement, the countdown to closing begins. Timing is essential to make sure all the ingredients for a successful closing are in place on your closing day. You can choose the attorney who will act as your settlement agent to prepare the documents for your closing. In most parts of the country, the settlement agent is an attorney and title company. Once an attorney has been selected, he will handle the closing process from there. If you have given the seller an earnest money deposit, your attorney will see that it is promptly deposited into an escrow account where the funds are held until the time of closing.
Next, we as your atttorney will do the preliminary title work. An abstractor eg Montevideo Abstract Company, will search and examine the public records for information related to your home’s title. She updates the Seller’s abstract and delievers it to your attorney for examination. This provides warnings of title flaws that must be dealt with before the property can change hands. For instance, the previous owner may have failed to pay local or state taxes. Or there may be an outstanding mortgage or judgements or tax liens on the property. Attorneys work hard to see that such obligations are dealt with and resolved before you go to closing, if possible. If the sales contract calls for a prior mortgage to be paid off, the attorney settlement agent will order payoff figures from the existing lender. This protects you from buying a house that has a prior mortgage on it.
Finally the attorney settlement agent prepares the HUD-1 Settlement Statement. The HUD-1 lists all of the costs for both the buyer and seller associated with the closing.
On closing day, the property will be transferred from the seller to the buyer by a Warranty Deed. There will be a number of documents for you to sign, that will be explained by your attorney settlement agent. Check with your attorney for more details on how the closing is conducted if you have questions. Once all of the signing is done, the house is yours! Of course you will probably have a Mortgage so some people say the house is theirs and the banks.
You should be generally aware that the behind-the-scenes process continues after the closing. The settlement agent still must forward payment to any prior lender, pay all the other parties who performed services in connection with your closing, pay out any net funds to the seller, and order a final search of the title to your new home before finally recording all the documents needed legally to complete your purchase and provides final title insurance policies if those were purchased at closing. But you don’t have to be involved in any of this. Your attorney / settlement agent takes care of these post-closing details!
Closing Costs Explained
Fees may vary depending on several factors but most should be listed in the Good Faith Estimate provided by your lender. Talk to your lender, real estate agent, and settlement attorney for more specific information.
All closing costs must be listed on your HUD-1 settlement form, a document that is required to be filled out prior to closing on the house.
What are My Closing Costs?
In addition to the sales price of the home, there are a variety of costs associated with finalizing the transaction. We can explain these to you in detail either before or at closing. Often these costs are not finalized until the day before or the day of closing. However, your financial institution must give you accurate estimates of these costs under the new Real Estate Settlement Procedures Act (RESPA).
Real Estate Broker Commission/Fees
If you use a real estate agent to help you in selling or buying your home, the cost of the agent’s services can be paid in one of two ways. Generally, the seller pays for all agents in a transaction in an amount usually stated as a percentage of the sales price. While this amount will be deducted, along with other seller-paid closing costs, from any amount the seller might otherwise be paid and is usually stated on the HUD-1, this is not a buyer’s charge. Increasingly, buyers in some places are engaging their “buyer’s broker or agent.” Sellers frequently pay for such services on behalf of buyers because the total realtor’s fee is split between buyer and seller’s realtor.
April 1, 2015
Why You Need Title Insurance
When you purchase your home, how can you be sure that there are no problems with the home’s title and that the seller really owns the property? Problems with the title can limit your use and enjoyment of the property, as well as bring financial loss. That is what a title search and title insurance are for.
The Title Search
After your sales contract has been accepted, a title professional will search the public records to look for any problems with the home’s title. This search typically involves a review of land records going back many years. More than 1/3 of all title searches reveal a title problem that title professionals fix before you go to closing. For instance, a previous owner may have had minor construction done on the property, but never fully paid the contractor or released the mechanics lien. Or the previous owner may have failed to pay local or state taxes (See below for some other common title problems). Title professionals seek to resolve problems like these before you go to closing. What happens if a problem arises after you move in? Read on.
The Owner’s Title Policy
Sometimes title problems occur that could not be found in the public records or are inadvertently missed in the title search process. To help protect you in these events, it is recommended that you obtain an Owner’s Policy of Title Insurance to insure you against the most unforeseen problems.
Owner’s Title Insurance, called an Owner’s Policy, is usually issued in the amount of the real estate purchase. It is purchased for a one-time fee at closing and lasts for as long as you or your heirs have an interest in the property. Only an Owner’s Policy fully protects the buyer should a covered title problem arise with the title that was not found during the title search. Possible hidden title problems can include:
Errors or omissions in deeds
Mistakes in examining records
Forgery
Undisclosed heirs
An Owner’s Policy provides assurance that your title company will stand behind you monetarily and with legal defense if needed, if a covered title problem arises after you buy your home. The bottom line is that your title company will be there to help pay valid claims and cover the costs of defending an attack on your title. Receiving an Owner’s Policy isn’t always an automatic part of the closing process. Be sure you request an Owner’s Policy. The premium fee is a one-time fee paid at closing. The Owner’s Policy protects you for as long as you or your heirs have an interest in the property and even afterwards if who you sell to claims there is a title problem.
The Loan Policy
There are two types of title insurance: Owner’s title insurance, as mentioned above, and Lenders title insurance, also called a Loan Policy. Most lenders usually require a Loan Policy when they issue you a loan. The Loan Policy is usually based on the dollar amount of your loan. It only protects the lender’s interests in the property should a problem with the title arise. It does not protect the buyer. The policy amount decreases each year and eventually disappears as the loan is paid off.
If you purchase a Loan Policy and Owner’s Policy together, there is a substantial discount for the loan policy. Prindle, Maland and Sellner can provide title insurance for your closing. Contact us at sellner@montelaw.com or 320-269-6491
Common Title Problems
Here are three short stories on some common title problems:
Fraud & Forgery
Those involved in real estate fraud and forgery can be clever and persistent, which can spell trouble for your home purchase.
In a western state, an innocent buyer purchased an attractive home site through a realty company who accepted a notarized deed from the seller. Then another couple, the true owners of the property who lived in another locale suddenly appeared and initiated legal action to prove their interest in the real estate was valid. Under the Owner’s Title Insurance Policy of the innocent buyer, bought for a one-time fee at closing, the title company provided a money settlement to protect against financial loss. As it turned out, the forger spent time in advance at the local court house, searching the public records to locate property with out-of-town owners who had been in possession for an extended period of time. The individual involved then forged and recorded a deed to a fictitious person and assumed the identity of that person before listing the property for sale to an innocent purchaser, handling most contacts through an answering service. Also, the identity of the notary appearing on deeds was fictitious as well.
Fraud and forgery are examples of hidden title hazards that can remain undetected until after a closing despite the most careful precautions. Although emphasizing risk elimination, an Owner’s Policy protects you financially through negotiation by the insurer with third-parties, payment for defending against an attack on the title as insured, and payment of valid claims.
Conflicting Wills
Conflicts over a will from a deceased former owner may suggest a study topic for law school. But the subject can take on a reality dimension and all too quickly your home ownership is at stake.
After purchasing a residence, the new owner was startled when a brother of the seller claimed an ownership interest and sought a substantial amount of money as his share. It seemed that their late mother had given the house to the son making the challenge, who placed the deed in his drawer without recording it at the court house. Some 20 years later, after the death of the mother, the deed was discovered and then filed. Permission was granted in probate court to remove the property from the late mother’s estate, and the brother to whom the residence initially was given sold the house. But the other brother appealed the probate court decision, claiming their mother really did not intend to give the house to his sibling. Ultimately, the appeal was upheld and the new owner faced a significant financial loss. Since the new owner had acquired an Owner’s Policy of Title Insurance upon purchasing the real estate, the title company paid the claim, along with an additional amount in legal fees incurred during the defense.
Missing Heirs
When buying a home, it’s important to remember what you don’t know can cost you.
A couple purchased a residence from a widow and her daughter, the only known heirs of the husband and father who died without leaving a will.
Soon after the sale, a man appeared – claiming he was the son of the late owner by a former marriage. As it turned out, he indeed was the son of the deceased man. This legal heir disapproved of his father’s remarriage and had vanished when the wedding took place. Nonetheless, the son was entitled to a share of the value of the home, which meant an expensive problem for the unwary couple purchasing the property.
Although the absence of a will hindered discovery of the missing heir in a title search of the public records, an Owner’s Policy of Title Insurance issued for a one-time fee at the time of the real estate transaction would have financially protected the couple from the claim by the missing heir. For a one-time charge at closing, an Owner’s Policy will safeguard against problems including those even an exhaustive search will not reveal.
An Owner’s Policy is necessary to fully protect a home buyer. Lender’s title insurance, which is usually required by the mortgage lender, serves as protection only for the lending institution. Prindle, Maland and Sellner can provide title insurance for your closing, Contact us at sellner@montelaw.com or 320-269-6491