Chapter 16 Title Closing and Escrow.pdf

Title Closing and Escrow Chapters 16  Preclosing Procedures and Closing the Real Estate Transaction Walk-through: a final inspection of the property just prior to settlement Title Settlement/Closing: process of completing a real estate transac...

Title Closing and Escrow Chapters 16  Preclosing Procedures and Closing the Real Estate Transaction Walk-through: a final inspection of the property just prior to settlement Title Settlement/Closing: process of completing a real estate transaction – Buyer pays for the property; seller delivers the deed. – Methods: Settlement is at a meeting where each party is present. – Escrow Settlement is where an escrow agent completes the closing for the parties, mostly by mail. Closing – When the documents record  Preclosing Procedures and Closing the Real Estate Transaction (continued) Escrow agent: person placed in charge of an escrow Escrow closing: the deposit of documents and funds with a neutral third party along with instructions as to how to conduct the closing – In eastern U.S., closing is usually in a meeting. – Elsewhere, closing is completed by an escrow agent. Closing or Settlement Meeting – seller, buyer, and maybe agents, attorneys, and lenders – Seller meets with buyer and delivers the deed. – Buyer pays the seller. – Other parties verify documentation is complete.  Preclosing Procedures and Closing the Real Estate Transaction (continued) Seller’s Responsibilities at Closing – Seller provides deed, tax verification, insurance, proof of no liens, keys, and any leases and lease information. Buyer’s Responsibilities at Closing – Buyer brings settlement funds. Lender will require numerous surveys, reports, insurance information, etc. Real estate agents (the buyer’s and the seller’s) must have everything prepared.  Conducting the Closing The Transaction – Both parties, or attorneys, inspect all documents. – Seller signs an affidavit confirming ownership and no liens. – Settlement statement: accounting of funds to the buyer and seller at the completion of a real estate transaction – All moneys must be shown on the closing statement. – Moneys are distributed by the lender within days or weeks. Dry Closing - Closing into Escrow – Delays in closing may cause closing in escrow— documents are signed and escrow agent sends documents and disbursements later.  Conducting the Closing (continued) Escrow Escrow Agent’s Duties – Buyer’s money is deposited in a trust account. – Escrow agent forwards title search to buyer when completed. – Seller sends insurance, tax, and other papers to escrow agent. – Seller sends signed deed to escrow agent. – Escrow agent disburses documents and money to the parties. The Closing – Escrow agent does last check of title the day before closing. – Escrow agent disburses moneys and documents. – County clerk’s office disburses documents to proper parties. – Buyer and seller do not have to meet face-to-face.  Conducting the Closing (continued) Delays and Failure to Close – A closing date is included in the sales contract. usually 30–60 days – Delays may occur that extend the closing date. – Release from the sale is possible by mutual agreement. – One-sided cancellations are troublesome and courts may get involved. – Closings could proceed with courts decisions to come later. Loan Escrows – Escrow can be used for refinancing or paying off a loan—between the borrower and the lender.  Preparation of Closing Statements Reporting Requirements – Seller’s proceeds are reported to the IRS on Form 1099-S. – Taxpayer Relief Act of 1997 Sales under $250,000 (single taxpayer) or $500,000 (married taxpayer) do not need to file Form 1099-S. – Taxpayer can file a form with Secretary of State stating: » seller has owned and used residence for 2 of the past 5 years; » seller has not owned or exchanged another residence for 2 years; » no portion of residence has been used for business or rental; » sales price, capital gains, and marital status filings are met; and – form is in writing and signed by seller.  Preparation of Closing Statements (continued) Prorating at the Closing – Ongoing expenses of the seller and buyer must be prorated. Hazard Insurance Loan Interest 30-Day Month Rents Property Taxes Homeowners Association – Prorated Date Prorations can be as of closing date or a mutually agreed upon date. Special Assessments – not typically prorated – Street improvements, water mains and sewer lines – Closing Disclosure Form: form used to list the specific information and costs included in the closing  Preparation of Closing Statements (continued) Figure 16.1 Common Prorations  Sample Closing Table 16.1  Closing Disclosure Form Table 16.2  RESPA and the Uniform Settlement Statement Real Estate Settlement Procedures Act (RESPA): federal law that deals with procedures to be followed in certain types of real estate closings Restrictions – Prohibits kickbacks and fees for services not performed. – Seller cannot require a specific title company. – Restrictions are placed on amounts of advanced payments. Benefits – Borrower receives RESPA information booklet and estimate of closing costs from the lender. – Lender uses the Closing Disclosure (Figure 16.3) – Buyer can inspect the Closing Disclosure before closing.  RESPA New Real Estate Settlement Procedures Act (RESPA) Regulations: – HUD – Effective January 16, 2009, all third- party charges paid by title agents must be separately itemized and cannot exceed the amount actually paid to the service provider. Right to Cure – At settlement or within 30 Calendar days