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.
Slide 3
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
Slide 4
CONTRACT Since the contract actually vests title, you cant 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 Drivers
license, ask about middle names and Jrs.
Slide 5
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 dont 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.
Slide 6
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
Slide 7
CONTRACT Do not just assume you know how people want to hold
title, always ask! Examples: Now its 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.
Slide 8
CONTRACT There is also the 2 nd 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 isnt always the case. People have kids from their 1 st
marriage so they dont 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.
Slide 9
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. Its a very important decision and once it's on record it
stays that way.
Slide 10
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.
Slide 11
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.
Slide 12
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.
Slide 13
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.
Slide 14
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.
Slide 15
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.
Slide 16
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.
Slide 17
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.
Slide 18
CONTRACT Buyer Trust issues: Weve 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 LLCs, necessarily.
Slide 19
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.
Slide 20
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.
Slide 21
Artificial Entities Its extremely important when dealing with
trusts to understand that a trust, like an LLC, is viewed at law as
a separate entity. Trusts and LLCs 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.
Slide 22
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.
Slide 23
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.
Slide 24
CONTRACT We search the seller's name on the county website to
confirm this, but that doesn't always help the issue. Its 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.
Slide 25
CONTRACT The next thing thats 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 its different from the purchase property.
Slide 26
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.
Slide 27
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.
Slide 28
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
Slide 29
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 sellers option. #25 Sellers 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.
Slide 30
CONTRACT The closing attorney is technically buyer's attorney.
In DE theres an attorney client relationship between the buyer and
the attorney. Its 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.
Slide 31
CONTRACT Signatures: SO IMPORTANT TO GET ALL SIGNATURES- not
effective contract until ALL parties have signed the entire
contract.
Slide 32
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.
Slide 33
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.
Slide 34
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.
Slide 35
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 dont need to be an actual
signature. Be aware so you dont 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.
Slide 36
Okay, youre under Contract. You did everything correct, with
correct names, addresses, etc. What's next thing you should be
doing?
Slide 37
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.
Slide 38
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.
Slide 39
Title Company There is really important information that isnt
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.
Slide 40
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)
Slide 41
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.
Slide 42
Title Company Special requirements: If a person lives out of
state and wont 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 wont 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.
Slide 43
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 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.
Slide 44
The Settlement Process from Title Companys 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.
Slide 45
The Settlement Process from Title Companys 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.
Slide 46
The Settlement Process from Title Companys End Letters to
Parties. Send out the buyer and seller letter we discussed earlier.
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.
Slide 47
The Settlement Process from Title Companys 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.
Slide 48
The Settlement Process from Title Companys 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.
Slide 49
The Settlement Process from Title Companys 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
Slide 50
The Settlement Process from Title Companys End We then will
draw up the seller docs which include: (pass out to everyone) 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
Slide 51
The Settlement Process from Title Companys 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.
Slide 52
The Settlement Process from Title Companys 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.
Slide 53
The Settlement Process from Title Companys 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 lenders 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.
Slide 54
The Settlement Process from Title Companys 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.
Slide 55
CLOSING Things to bring: Important for all parties to bring 2
forms of ID A personal check Agent needs to bring deposit
check
Slide 56
CLOSING Trouble areas on HUD-1: Understanding pro-rations. We
will provide you with a tax bill to 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. - Rule of thumb: approx 2 months buffer
Slide 57
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 everyones expectations. Assure parties
that now is the time to ask questions and to not be shy. No
question is a stupid question.
Slide 58
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. Most other documents are standard
disclosures and affidavits.
Slide 59
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.
Slide 60
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.
Slide 61
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.
Slide 62
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. This can take a few months but recorded docs
are typically available online for a minimal charge.
Slide 63
ALTAS BEST PRACTICES Best Practices Compliant: We are best
practices compliant. We strive to have our documents on record
within two days 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.
Slide 64
Altas 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.