Jan. 17, 2007 - Reading a "Title Committment"

After your contract has been fully executed ( signed) by both the buyer and seller), it will be receipted by a title company.  Once this happens the title company will open title and start to examine the property in order to be able to issue title insurance.  Within about  a week after title is opened, you will receive a title commitment in the mail or by email.  All parties involved with the transaction will receive a copy of the commitment, the buyer, the seller, the buyer's agent, the listing agent and the lender. 

Just what is the title commitment and what do you need to look for.  The title commitment is a commitment to issue title insurance.

After your contract has been signed by both parties, it will be receipted by a title company. Once this happens, the title company will start examining the property in order to be able to issue title insurance. Within a week or so after being receipted, you will receive a title commitment in the mail or by email. So will Buying Agent, the Listing Agent and your lender.

Please keep in mind when reading through this that this applies to a title commitment in Texas. I don't have experience with what a title commitment looks like in other states. My feeling is that they will be similar, but some states may do things a bit differently. (I've checked and it's similar in Nevada)

Just what is the title commitment and what do you need to look for? The title commitment is a commitment to issue title insurance. The title commitment is broken down into four parts or schedules. They are Schedules A, B, C & D.

Schedule A - "A" is for "Actual Facts." This is where you will find the who, what, where and how much information. The most important information here will be the name of the person who holds the existing title, the legal description of the land and the name of the proposed insured (buyer), the sales price and the name of the lender. What we want to make sure of is that all of the information is accurate when it is compared to the sales contract.
Schedule B - "B" is for "Buyer Notification." This is the section of the title commitment that address where other parties have any interest or control of the use of the property. Examples of this are utility easements and building setbacks. A utility easement is a common thing to find here. This would be a part of the land that a utility company has the right to use. A setback prevents the owner from building a certain distance from the front property line. Schedule B is also the area in which exceptions will be noted. Exceptions in this case are anything that will not be covered by title insurance.
Schedule C - "C" is for "Clear to Close." This is the area in which any issues must be resolved before the buyer can close on the property. Common issues here are an existing mortgage that needs to be paid off, a marital status issue, unpaid taxes and liens on the property.  Typically if there is a problem we will receive a call from the title company but it is a good idea to check this section out closely when we receive the commitment.
Schedule D - "D" is for "Disclosure." This final section outlines all parties who will collect any part of the insurance premium including underwriters, title agents and attorneys. It will also show the amounts being paid for the owner's title insurance policy, the mortgage company's amount and any endorsements.
The most particular entity looking at the title commitment will most likely be the lender if one is involved. Lenders generally do not like to see any defects in Schedule C that can not be cleared.

The title commitment can look a little scary if you have never seen one before. A good closing officer will review the title commitment and will bring to the Buyer's Agent anything of concern.

Jan. 16, 2007 - What is an Escrow Account?

• An escrow account is a neutral depository set up by your lender to collect (as a part of your monthly payment) for your homeowners insurance and real estate taxes, which are due annually. 
• You will pay one-twelfth of the annual amount of these bills each month with your regular mortgage payment.
• At the end of the year these bills will be paid on your behalf by the lender.
• With a 20% down payment you may not be required to have an escrow account. You will need to set aside funds to pay taxes and insurance when they are due.
• In Texas, interest is not paid on escrow accounts.
• Texas law prohibits lenders from holding excess money in escrow accounts.

Setting up the escrow account.

• At closing, about 3 months of taxes and insurance will be collected in advance to place in this account.
• This will cover the first month after closing, since you do not make a payment for this month, and the lender needs a couple of extra months in the account so that bills can be paid on time.
• At the end of each year, the escrow account is re-evaluated, reflecting any changes in your taxes and insurance. The monthly payment is reset for the following year. Any overage in the account will be refunded

Jan. 14, 2007 - What to bring to your real estate closing!

At this point you will have a clear title commitment and will have completed any inspections etc. you wish to have on the property.

You will be required to pay all fees and closing cost in the form of "guaranteed funds" such as a Cashier's Check.  Your agent or escrow officer will notify you of the exact amount.   You will receive a closing document required by HUD that outlines the settlement cost. The title company prepares this document.   For additional information on HUD statements go here.  In a perfect real estate world you would receive this the day before closing so you would have time to go over it before closing.  Unfortunately real estate is not perfect I can't tell you how many times we get this from the title company at the closing table.  Should that happen you can bring a check using the figures your lender have come up with from your good faith statement.  Should you not bring enough money you can write a personal check to the title company for up to $1500.  On the flip side if you bring too much money the title company will cut you a check for the overage.

The other item you will need to bring is a picture ID such as your driver's license.  A number of years ago I had a client who was moving to another state.  He came back to Texas for the closing and to get his furniture.  A few days before closing I found out that he had turned in his driver's license to the other state and only had a piece of paper for a drivers license.  He did not have another picture ID.  Back then I talked the title company in to letting us get a membership at Sam's Club and using it as a picture ID.  As I told you this was quite a few years ago I'm not sure if that would fly today.  Long story short I highly recommend not turning in your driver's license if you are planning on buying a house unless you have another type of picture ID like a passport.

Jan. 13, 2007 - What is Title Insurance?

Title insurance provides protection against title defects that were unknown to you at the time you purchased the policy.

Before writing a policy, a title company will check for defects in your title by examining public records, including deed, mortgages, wills, divorces, court judgements, tax records, liens, and encumbrances.  The company will then defend in court any claims to the property that are covered by your policy, subject to certain limitations.  If the company loses, it will pay you for covered losses up the the amount of your policy.

In Texas, the two most common types of title policies are "mortgagee policies," which protect lenders, and "owner policies," which protect buyers.

Most lending institutions won't loan you money to buy a house or other property unless you purchase a mortagee policty.  This policy will repay the balance of the mortgage if a claim against your property voids your title.  Mortgagee policies remain in effect until the loan is repaid.  Most lenders will require you to buy a new motgagee title policy if you refinance your home. 

Owner policies insure property owners against the specific kinds of claims listed in the policy.  Any owner policy remains in effect as long as you or your heirs own the property or are liable for any title warranties made when you sell the property.  You should keep your owner policy, even if you transfer your title or sell the property.

In Texas our title policy forms are standarized.  This mean the policy languae is the same, regardless of the company. Pay special attention to "Schedule B" of the policy which explains any limitations, exclusions, exceptions and special conditions.  You many want to discuss these exceptions with an attorney before you close on a real estate deal.

The premium for a title policy is paid only once, at the closing of the sale.  The buyer and seller may negotiate who pays the premium.

Title insurance premium rates are set by the Texas Department of Insurance and are based on the property's sale value using a sliding scale.

Jan. 10, 2007 - What is a Real Estate "Closing"?

A 'real estate closing" is the meeting of the buyer, seller, and their agents (optional), and representatives from the lending institution and Title Company wherein the actual transfer of title to the property occurs.  The purchase agreement or contract that has been signed describes the property, states the purchase price and terms, sets forth the method of payment, and usually names the date and place where the closing or actual transfer of the property title and keys will occur.  Here in Texas we typically do that in one room all together.  I have lived in several states and can tell you that each state is different.  Occasionally it doesn't work for the buyer and seller to be there at the same time and they will sign the papers at different times.  If the buyer or seller is in another state the title company can do a mail out where they sign the papers in front of a notary republic.  Regardless of how it is done all parties must sign in front of a notary.

The title company transferring ownership of the property will prepare a new deed.  The lender will require the new buyer to sign a promissory note.  In Texas we use a "Deed of Trust' instead of a traditional mortgage.  A deed of trust is not a deed it is a mortgage.  The buyer sings the deed of trust as security to the lender for the loan.  The mortgage or deed of trust gives the lender the right to sell the property if the buyer fails to make the payments.  Basically no pay, no stay.  Before you exchange the papers the property may be surveyed, appraised, inspected and the ownership of title checked in county and court records.