Transcript Real Estate Closing Process from Start to Finish

CONTRACT
The contract is extremely important
because whatever names and other
information in the contract controls
the closing process and what we do as a
settlement agency.
CONTRACT
 The reason the contract is so important is because
when people sign a contract, equitable title actually
passes to that person, as long as they do everything
that the contract states.
 The closing passes legal title to the purchaser where
they become the owner of record.
 This goes for both buyer and seller
CONTRACT
 Since the contract actually vests title, you can’t just add
someone onto the HUD-1 or Deed until the contract is
amended to reflect the additional parties.
 The first thing we do as a settlement company is plug the
EXACT names from the contract into the HUD-1. If these
names are not correct, this can become a big issue.
 As agents, you should always specifically ask people
EXACTLY how they want their names reflected on the
contract because this is how the names will also be
reflected on title.
 Check Driver’s license, ask about middle names and Jrs.
CONTRACT
 However the names are listed on the contract, will also be how the
names are listed on the HUD-1, Deed and all loan documents from the
beginning to the end of the closing process unless corrected.
 We run title, bankruptcy checks, judgments, liens; everything for this
purchase is associated with this name.
 Do not just assume you know how people want their names on the
contract. Be sure to ask.
 People don’t always go by their given names that show on their IDs.
 Ex.) I go by Steve Norman, but my legal name is Stephen Price
Norman.
CONTRACT
 The #2 mistake people make on the contract is not
adding all people which is also reflected on title.
 Typically title is held as follows:
 Tenants by the Entirety (Husband and Wife)
 Tenants in Common
 Joint Tenants with Right of Survivorship
 Sole Owner
CONTRACT
 Do not just assume you know how people want to hold
title, always ask!
Examples:
 Now it’s especially complicated with laws in DE because
people who are of the same sex can be married and can
hold title as tenants by the entireties, not just joint tenants.
 T by E provides protection from creditors of one with
limited exceptions for IRS tax liens.
CONTRACT
 There is also the 2nd marriage dilemma. You assume
people who are married want to hold title as Tenants
by the entireties, husband and wife, to get the creditor
benefits.
 but that isn’t always the case.
 People have kids from their 1st marriage so they don’t
want to hold title as tenants by the entireties because
they want their half of the property to go to their kids
from their previous marriage when they die.
CONTRACT
 People don't always under the title vesting and say they
want it held a certain way, but don't always understand
what it actually means.
 Ex.) Married couples wants joint tenants but this can
be broken up by a creditor of one.
 As an agent, if you represent purchaser, and make sure
the attorney explains and asks the buyers these
questions so they understand exactly what it means.
It’s a very important decision and once it's on record it
stays that way.
CONTRACT
Problem of the Estate or Trust
It is common reasoning to think that if you
are dealing with a person, then that's how
they're taking title or want the property
owned, however there are other forms of
ownership.
CONTRACT
Problem of the Estate or Trust
The biggest problem is the Trust.
 Trusts can come in all shapes and forms;
 Revocable, irrevocable, spend thrift, and qualified trusts are just
a few examples.
 Can get very complicated for large estates.
 These are all basically estate planning tools used to avoid
probate, reduce liability, and protection against creditors.
CONTRACT
Sellers Trust issues:
 Frequently the contract does not let us know that the
property is in the name of a trust.
 Typically, but not always we are dealing with revocable
trusts used to avoid probate taxes.
 A Trust has different participants: Trustees or co-trustees
(power to implement trust), beneficiaries (people who
benefit from trust).
 Trustees can also be the beneficiary.
 Trustees have fiduciary duties to the beneficiaries.
CONTRACT
Sellers Trust issues:
 In the trust, the trustees can act alone or there can be
requirements that they act together.
 Also, successor trustees you need to be concerned
with.
 Rule of thumb: The trustees have a fiduciary duty to
the beneficiaries of the trust to act in best interest of
beneficiaries.
CONTRACT
Sellers Trust issues:
Important to us as settlement companies: A
Trust is viewed as a separate person. As
agents, you need to specifically ask them
how the property is titled and if it is in the
name of a trust.
CONTRACT
Sellers Trust issues:
 4 things the attorney MUST review of the trust:
1.) The front page showing the creation of the trust
2.)The clause that shows the power to transfer or sell
the real estate
3.)The signature page
4.)The naming of the trustee section
The bottom line, as attorney we need a copy of the
trust as soon as possible. Often times trustees
aren't local and we need to get seller documents
to them and make sure trust has authority to
transfer the property.
Capacity to Contract
 Comes up with trusts with elderly trustees.
 Not a high standard.
 Also, may pop up on individual sales.
 The Rule is that persons entering into a contract must have
the mental capacity to understand what they are signing.
 This is not resolved by signing a Power of Attorney since
they do not have the power to sign a POA.
 Need to really go slow when the POSSIBILITY of lack of
capacity pops up to make sure that there is capacity to sign.
CONTRACT
Buyer Trust issues:
 If it's a cash deal then it's typically not an issue. They
can buy in a trust with no issues usually.
 The problem with a buyers trust is that not all lenders
will loan to a buyers trust.
CONTRACT
Buyer Trust issues:
 We’ve had settlements where it's literally killed a deal in the end.
 Others where the entire contract needed to be changed the day
of closing.
 A way to prevent this is to take it in the individuals name and
then transfer it into the name of the trust after settlement as a
separate transaction.
 Title insurance typically has allowances when it changes into a
wholly owned trust, the title insurance is still valid.
 Not the same for LLC’s, necessarily.
CONTRACT
ESTATE
The problem with an estate is usually when someone dies
with a will. Typically in probate, a will appoints a personal
representative or executor or executrix. This person is
similar to a trustee whose obligation is to handle
distribution of estate when someone dies. This can be even
more problematic than a trust because this person's
authority to act needs to have some court action to accept
their appointment.
CONTRACT
Trust and Estates- 1 thing we need to
make sure we do is NOT pay an
individual when the property is in the
name of an estate or trust.
As legal recognition of law, we must issue
the check to the trust or estate, NOT the
individual. This is on the attorney
settlement side of the transaction.
Artificial Entities
 It’s extremely important when dealing with trusts to
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understand that a trust, like an LLC, is viewed at law as
a separate entity.
Trusts and LLC’s need to be in good standing.
Proper authority needs to be provided to trustee and
signor for LLC.
All checks and documents need to be issued to the
artificial entity, NOT to the individuals.
Fiduciary duties to parties that are not actively
represented in the transaction.
CONTRACT
The next trouble area is the property and tax parcel
ID #
The problems we run into as settlement agents:
 Parcel ID not listed on contract
 Not legible
 Not correct
We need the correct parcel ID to obtain the property
information from the county website.
CONTRACT
 In Sussex County, the property is not listed by the
actual address, but by the parcel ID #.
 Another issue is that sometimes someone is selling a
property where there is more than 1 lot so there is
more than 1 tax parcel ID # associated with the sale.
 We need ALL tax parcel ID numbers associated with
the sale listed correctly on the contract.
CONTRACT
 We search the seller's name on the county website to
confirm this, but that doesn't always help the issue.
 It’s very important to get this Parcel ID # correct
immediately from the start.
 The county and town taxes and water/sewer readings
are always read and associated by the tax parcel ID #s.
 If it's not correct, there could be taxes left unpaid at
settlement which later poses a problem for the new
owner.
CONTRACT
 The next thing that’s important is to get the primary
addresses of both the buyer and seller because this will
be where they want to receive mail after settlement.
 This address will be reflected on the HUD-1 and Deed.
 This address will also be where the town and county
send any bills associated with the purchase property,
even if it’s different from the purchase property.
CONTRACT-Deposit
 Payment Terms: The issue we have is people bringing a deposit
to check at closing. If we don't have good funds at closing, by
law, the closing cannot go through because all funds must be
good and able to clear.
 Another issue is also consideration: If it says there is a 5G
deposit on the contract, we need to make sure that check is
received and deposited into the bank immediately.
 If you don't have those funds cleared in escrow within a
reasonable amount of time, the seller can cancel out of contract.
 Make sure as the agent holding the deposit check, you
deposit it into escrows as soon as possible to make sure all
funds are good and clear.
CONTRACT
 #6 financing contingency: If you check that box as yes
and the buyer doesn't get financing, then they can cancel
out of contract and also receive their deposit back.
 #7 Settlement and #8 Time is of the Essence: It is so
important that settlement is ready by the date listed
because if not, you fall out of contract if there is a time is of
the essence clause.
 This means that if there is a clause like this included, you
must strictly follow these timelines or else whoever is the
cause of the hold up can be held in default.
CONTRACT
 Deed Prep issue: In DE it is customary that the
transfer taxes are split, although this can change by
contract as it often does for new home purchases with
national builders.
 Seller usually pays the deed preparation
 Buyer usually pays all recording charges
CONTRACT
 #24 Buyer's Default- gives the seller the right and
option to retain any deposit money as liquidated
damages or exercise any legal or equitable right that
they may be entitled to at the seller’s option.
 #25 Seller’s Default- the buyer gets all money back,
including any reasonable costs they've incurred for
settlement and they also have the right to seek any
remedy and maintaining any action.
 Buyer may have equitable right to specific performance
because each piece of property is unique.
CONTRACT
The closing attorney is technically buyer's attorney.
 In DE there’s an attorney client relationship between the
buyer and the attorney.
 It’s not like this in Maryland and most other jurisdictions
where there is no attorney client relationship and where
non-attorneys can perform settlements.
 In a tricky deal, it may make sense for seller to obtain their
own attorney to review documents prior to settlement.
CONTRACT
Signatures: SO IMPORTANT
TO GET ALL SIGNATURES- not
effective contract until ALL
parties have signed the entire
contract.
CONTRACT
 Another issue is the First Time Home Buyer: this
allows for county transfer taxes to be exempt.
 Both buyer and seller benefit from this, but you can
change this by contract so the buyer only benefits by
making the seller pay the state transfer taxes and buyer
can be responsible for county transfer taxes, which
they'd be exempt from.
 Payment terms can be changed, but there are usual
and customary splits if not addressed.
CONTRACT
 Additional terms and conditions: If you have a few
conditions you want completed before settlement, you
can list these in #32 on the contract. You can also add
additional addendums and check box on line #31.
 Ex.) Fix broken window, make sure garage door opener
works, fix dish washer, leave paintings on the wall, etc.
CONTRACT
 This is a form contract generated and approved by the DE
real estate commission.
 There is NO legal requirement that this document has to
be used.
 In order to have valid contract, case essential terms of the
contract are: purchase price, closing date, and the specific
description of the property.
 Statute of Frauds. As long as those 3 things are met in
writing, you can have a binding contract so you need to be
careful with what writings are going back and forth.
CONTRACT
 Statue of frauds only requires writing in order to have a valid
contract, not a specific contract.
 Case law is moving further and further away from requiring an
actual signature in order for a contract to be binding so be
careful.
 The trend is toward emails, texts, and other forms of electronic
communications to be binding.
 Delaware has a Uniform Electronic Signature Act which allows
signatures to be digital and don’t need to be an actual signature.
 Be aware so you don’t unknowingly enter into an agreement
thinking it has to be on this form or have a signature.
 You and your Client need to be careful with emails and TEXT
MESSAGES.
Okay, you’re under Contract.
You did everything correct,
with correct names,
addresses, etc.
What's next thing you should
be doing?
Title Company
 Right away secure reputable title company.
 Make sure you have confirmation in writing that they
received a copy of the contract you send over.
 Provide the commission.
 There is no place for commission listed on contract so
the most important thing for YOU is to have that
correct and provided to the settlement company to list
on the HUD-1.
Title Company
 Give closing agent the contract and client's contact
info.
 Today email is key.
 Request that the title company contacts your
client immediately to at least touch base and
introduce themselves whether it be by phone or
email.
Title Company
 There is really important information that isn’t listed
not on the contract:
 #1 commission rate. MOST IMPORTANT!!
 #2 who's holding deposit
 #3 HOA information/contact person
 #4 estimated settlement date if it's different from what's
in contract
 #5 seller/buyer information so we can contact them to
get the lender information to begin the whole title
process. Especially email addresses.
Title Company
 The settlement company should send out a buyer
and seller letter to both parties to fill out and
return to them as soon as possible to get any
additional information they may need to make
sure the settlement process is smooth and
completed correctly.
(see buyer and seller letter and go through each of them
with everyone)
Title Company
 Make sure you check in with your buyer or seller to see
that they got this info back to the attorney or
settlement coordinator so there's no last minute issues.
 If all this info is provided up front then, you may not
hear from us until close to closing.
 Periodically we will touch base, but these are all the
important items we will need.
Title Company
 Special requirements: If a person lives out of state
and won’t be attending settlement, we'll have to draft
POA or obtain the deed early.
 The sooner we know, the better we can plan a seamless
smooth closing.
 Be sure to let us know if the buyer or seller won’t be
attending settlement, if they need to schedule a
weekend closing, or if they need a power of attorney.
 This will make everyone's lives easier so that we can all
plan accordingly and there are no surprises.
Title Company
 If you're the sellers agent, ask how the seller wants
their funds after settlement and let us know how you
want your commission funds.
 We can wire seller or commission funds and provide an
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email confirmation of the wire after closing.
Let us know if the commission check is just one check or
multiple checks.
Referral fees- make sure we have everything in writing to
cut and disburse checks accordingly.
If the seller wants split checks or wires, we need it in
writing from the seller showing how they want it split or
wired, and signatures from all parties on the seller's side.
Wire authorization forms protect everyone.
The Settlement Process from Title
Company’s End
Now what we are doing on our end:
 The 1st thing we do when we get a contract is open a
file and create a preliminary HUD based off the info
on the contract.
 We check the county website with the parcel ID #
listed on the contract for county taxes to list on the
settlement statement.
 Once settlement is confirmed, we order a title search
which takes approx. 5 days to get back.
The Settlement Process from Title
Company’s End
What is a title search:
Chain of title, confirms who owns property and
how it's owned, provides us with any mortgages
or liens on the property that may need to be
addressed, tells us if buyer or seller have
judgments or are in bankruptcy, and tells us
what other encumbrances or issues may affect title
such as tax ditches, easements, restrictions,
etc.
The Settlement Process from Title
Company’s End
 Letters to Parties.
 Send out the buyer and seller letter we discussed earlier.
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We try to email these to make things more efficient.
The buyer letter informs them there's an attorney client
relationship
Informs buyer they may be entitled to a reissue rate on the
title insurance.
40% off of their title insurance if within last five years.
Sale or Refinance up to value on lender or owner policy.
The Settlement Process from Title
Company’s End
What is title insurance: (pass out brochures)
 Covers 4 primary categories: Liens, errors, claims, fraudulent activity.
It is Important to stress to your buyer that title insurance is important
to obtain at settlement.
 Who is covered by title insurance?
 Lender's title polices and owner's title polices
 1 time charge based off of a percentage of the purchase price.
http://ratecalculator.fnf.com/
 This charge should be the same no matter what title company your
buyer uses.
The Settlement Process from Title
Company’s End
 After title comes back after about 5 days, the attorney will
review title to make sure there are no issues that came back
on the search.
 If there are issues, these will be addressed, if not, we
prepare a title binder for the lender summarizing the title
condition of the property.
 This tells them 4 primary things:
 Who owns property now
 Who will own the property
 What needs to be taken care of now
 What exceptions will remain on the property.
The Settlement Process from Title
Company’s End
Now we send the following to the lender:
 Title commitment
 Closing protection letter (which is a commitment from title
insurance company to insure the property as long as certain
conditions are met)
 Preliminary HUD-1 which has all information we've received to
date from the information we've collected and from what has
been returned on the buyer/seller letters, with the exception of
lender's fees, escrows, and payoff information.
 Wire instructions
 Tax information & w/s print outs from the county and town
The Settlement Process from Title
Company’s End
 We then will draw up the seller docs which include: (pass out
to everyone)
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Deed
Transfer tax affidavits
5403 tax form
1099S form if required
Any powers of attorney
Buyers and sellers affidavits and disclosures –
 buyer and seller affirm they have done everything required.
 Affirm they have property authority to transfer property
 and that they are not aware of any issues on the property.
 Both parties understand the contract controls closing process and
mistakes made are subject to terms of contract
The Settlement Process from Title
Company’s End
 We will confirm the identity of the people if they won't
be attending settlement and then send out documents
for execution and notarization.
 2 forms of identification are required if either party is
not attending the settlement table to cover all parties
in this transaction.
The Settlement Process from Title
Company’s End
 At this point we've done everything we can do, so we
typically reach out to agents to find out if there is a
preferred date, time and location for settlement.
 Also, to let them know everything is complete on our end
and has been sent to the lender while we wait for lender's
closing instructions.
 A settlement time and date is scheduled and confirmed by
all parties and once we receive closing instructions from
the lender, we can input the additional lender fees and
escrows to send back to the lender for HUD approval.
The Settlement Process from Title
Company’s End
 Our goal is to get the purchaser an approved
settlement statement 72 hours prior to settlement
depending on lender approval.
 This is a trouble area and funds for closing provided
prior to lender’s approval is always an estimate until we
have FINAL lender approval.
 This needs to be stressed to the buyer since the final
numbers are out of our control.
The Settlement Process from Title
Company’s End
 Once we receive final approval from the lender, we will
contact both buyer and seller and their agents to let them
know everything is complete and ready for settlement.
 We will email a copy of the settlement statement so if there
are any questions or concerns, they can be addressed prior
to settlement to ensure a smooth closing.
 We will provide wire instructions again, if necessary, to the
buyer to wire all funds into our escrow account for quick
disbursement to all parties after settlement is complete.
CLOSING
 Things to bring:
 Important for all parties to bring 2 forms of ID
 A personal check
 Agent needs to bring deposit check
CLOSING
Trouble areas on HUD-1:
 Understanding pro-rations. We will provide you with a tax bill to
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show you what the pro-rations are based off of. Seller vs. Buyer.
Mistakes are made periodically.
Make sure charges are on correct side of settlement statement such
as survey, termite, HOA, propane, etc.
Double check commission and admin fee if applicable.
Check transfer taxes and recording fees to make sure captured
properly.
Ask attorney to double check title insurance by providing the rate
calculator breakdown.
Review the escrows to make sure they are properly allocated based
on when annual taxes are due.
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- Rule of thumb: approx 2 months buffer
CLOSING
Trouble areas on HUD-1:
 Make sure home owner's insurance is reflected properly. If paid, make sure
POC. If not, make sure it's on there and for the correct amount. A lot of times
this invoice is provided by the lender so make sure it's correct.
 Check that the deposit is properly reflected.
 Loan terms. Page 3 of HUD1. Check loan terms to make sure it is correct for
amount, rate, and amount of monthly payments.
 Make sure everything on the settlement statement meets everyone’s
expectations.
 Assure parties that now is the time to ask questions and to not be shy. No
question is a stupid question.
CLOSING
 Critical documents:
 Vesting documents
 Deed and affidavits
 Mortgage and all riders
 Note
 TIL
 Uniform loan application 1003
 The first payment coupon so they know where their first
payment is being sent.
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Most other documents are standard disclosures and affidavits.
CLOSING
 Make sure that your client knows there is an attorney
client relationship and if they have any legal questions
outside the documents, that they ask the attorney
about any questions they may have regarding the
purchase.
 Any good attorney will be glad to oblige in answering
any legal questions the buyers may have pertaining to
the transaction.
CLOSING
 As an agent, you can ask questions:
 Make sure titling is correct on deed.
 Ask about the recording process and how long it takes
before it goes on record.
 Purchase money mortgages must be recorded within 10
days from closing to have super priority.
 Ask about when the buyer will get their owner's title
insurance policy emailed or mailed to them.
 Buyer will get copies of all documents they signed
including the seller documents (deed and affidavits).
 Any deposit checks will be deposited into escrow, and
real estate commission checks will be given to agents.
POST CLOSING
 After you leave it's not over:
 We scan in all documents so if you ever need copies we
will have them in our files
 Documents will be emailed to lender and all originals
will be sent via UPS to lender
 Funds will be wired or sent overnight to payoff
mortgages and sellers.
 Parties are sent documents if requested.
POST CLOSING
 Checks will be sent to different payees including tax
offices, HOI, HOA, etc.
 Deed and any mortgages will be delivered to recorder of
deeds to be stamped and placed on record.
 The original will be returned to the buyer once the
county sends it back after recording.
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This can take a few months but recorded docs are typically
available online for a minimal charge.
ALTA’S BEST PRACTICES
Best Practices Compliant:
 We are best practices compliant.
 We strive to have our documents on record within two days
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We have backup and disaster recovery
Accounting practices.
Licensing.
Networking.
 We've taken steps to protect against cyber attacks.
 Positive Pay
 We have insurance to cover against cyber attacks and other modern day threats.
Alta’s Best Practices
 American Land Title Association (ALTA)
 Best Practices is the new industry standard for
Settlement Companies in the RE Process.
 Lenders have begun to endorse and expected to
require these standards from those they do business
with.
 Certain tiers regarding licensing, accounting, timing,
financial management, insurance, communications,
etc meet these new standards.
 Bottom line: protects parties better. Accountability.