Archive for the ‘Closing’ Category
Closing Costs – Learn to Expect the Unexpected Costs in Real Estate
If you have just bought your dream house, you might be thinking about all the closing expenses related to home buying and how they can fit within your budget. These costs are divided into two different parts, those that are paid by the seller and the others are shouldered by the buyer. These will all be based according to the two parties’ agreement. When you chose your dream house to be constructed, you will surely pay majority of these figures once you have settled with your mortgage or maybe prior to the land acquisition process.
Usually those closing costs that are deducted from tax are the real estate taxes, property taxes that are pro-rated, mortgage points and also the mortgage interest. You settled all these costs at closing; even most of these items are not part of the closing costs. The only way you can claim these expenses is, if you have made a tax return that shows all the items that you have paid for. Do not forget to claim these deductions intended for the in the same year that you have bought the property.
Sadly, everything that you have shouldered during the closing will not be deducted from tax. These are just the figures that you have to settle during the home buying process. However, these fees add up to the tax basis of your property and will then take part only when you dispose your property.
The items that can include in the tax basis of your house are charges for the title, legal charges associated with the preparation of the contracts as well as the deed, expenses on the title search, taxes for transfers, surveys, charges for utility installation, insurance and charges for the recording process. In addition to that, any payable to seller which you agreed to pay off in closing such as commissions, expenses for the repairs, charges for mortgage and a lot more.
You can only enjoy the tax benefits when you decide to dispose your property. The sum of all the expenses can help you assess if there is profit or loss in such transaction. Everything will be deducted from whatever amount of the profit you have. And this can surely have an impact in your capital gain.
For those items that are not allowed to be part of the tax deduction are the amount of rent you incur before closing, fire insurance premiums, charges for the appraisal procedure, charges obtaining your credit report and any other item that you have encountered before closing.
If ever you have decided to sell your house, make sure to ask the help of any professional in real estate to guide you in every move you do. Home buying process involves a huge sum of money and thus you need to be cautious to avoid further complications.
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All About Close of Escrow
So many individuals are thinking of the definition of a close of escrow. This is simply another word for closing. Usually, this is known as the final stage in the real estate process. This is the stage where legal transfer of ownership occurs. Even if this is the final stage, a lot of necessary preparations have to be conducted to be able to secure the orderliness of the procedure. If something is wrong, the buyer may not go on with the deal and the seller will definitely welcome foreclosure in his property. Go on with the rest of the article so you will completely understand the meaning of a close of escrow.
There are essential papers that should be prepared when you are entering the final stage. The amount that you have both agreed and the considerations that you have talked about should all be revealed to all parties. Other important papers must be prepared for everybody that takes part in the transaction. Thus, the presence of a closing agent is a must. He takes charge of the preparation of all the necessary things for the closing. The buyer can select who he is going to hire. To secure a smooth flow of the procedure, the agent should be responsible enough. He should be smart enough with his presentation and he has the ability to clear out all the unresolved issues of all parties.
The very important persons in this conversation are the buyer, seller and the closing agent. Both the buyer and seller should confirm to all important papers and should be able to sign on them. And these documents are presented to them as their reference of their agreement. If they have clarifications, they can consult the closing agent. The legal counsels of the two parties can be around during this time. They can assist their clients to secure that all rights are due to the respective person. Aside from that, real estate agent and somebody from the lending institution can also be present in this meeting.
This meeting will involve the signing of all the necessary papers. Hence, it is a must that all parties confirm to the details written in the documents presented to them. The content should be clear enough and must be completely explained to prevent from having issues later on. When everything is done, the papers should all be signed. This is can also be the best opportunity for those documents that are still not submitted to the lender.
As soon as the papers are signed, the payment for the closing comes next in line. It is either the buyer or seller will pay for this depending on what the two parties have agree. Apart from that, a check intended for the mortgage will be given to the closing agent to be included in the report.
Though, the final stage can be through, but that does not include the closing agent from doing his job. He needs to report and have the close of escrow declared in the registry of deeds. It will take some time before the actual transfer of ownership to reflect. This means that the seller, real estate agent and the lending institution need to wait for some time before they can get their commission from the sale.
To have a smooth closing, make sure that you hire a reliable and veteran closing agent.
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What Happens During the Closing Day?
The closing day in real estate sector is on of the most important activities in every transaction. This is when the signing of documents, identifying the number of persons who will attend the meeting and computing the closing costs. On this day, there are so many things that will occur. It is necessary that you know what takes place on this day.
There are different individuals who will be present in the closing day. These are the seller, buyer, legal counsels of the two parties, real estate brokers of every party, the lender or any representative and the closing agent. This session normally takes quite some time before it is finally done. It can take about an hour or so. And it is the closing agent that facilitates the meeting. But if there will be no legal closing activity, your closing agent, the Escrow agent or any legal counsel can take the agent’s place to process the important documents.
Part of the closing day is going over the important loan documents. All these papers should be singed by all parties involved. Of course, you will not conform to the agreement if you have not yet fully read the contract. Get a copy or proof of homeowners insurance and other necessary inspections. Aside from that, the submission of the check the pays off the closing expenses as well as down payments will also take place. There are lenders who will encourage getting an Escrow account that will cover the property tax, insurance and monthly amortization. This is for security purposes. As soon as the closing is done, the seller can now hand over the keys to your dream house.
Before signing any contract, you have to carefully understand the content that is stated on the agreement. You can encounter things like HUD-1 Settlement Statement, deed of sale, promissory note and insurance, taxes and interest. The HUD-1 Settlement statement is a document that states all the fees and credits for the seller and buyer which all relies on the context of the contract. Deed of sale, on the other hand, has the property liens for your monthly amortization. The promissory note signifies the commitment of the buyer to pay the lender on a specific period of time. As for insurance, taxes and interest this is about the payment of property taxes, insurance and monthly amortization.
When it comes to closing costs, the HUD-1 Settlement statement will be given to you before the meeting starts. You can start asses the good faith estimates whether they are reasonable enough or not. Lenders will explain to you the variance between the GFE and the statement you have just read.
On the closing day, you will get the total expense together with the HUD-1. Preparing for the closing will surely help you finish the home buying process smoothly. Normally, when you have plans on buying a house, you need to set aside extra savings that will cover the closing costs and the down payment. Through this preparation, you can be assured that your closing day will not be as bad you think after all.
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Real Estate Contracts – A Life on Full Terms
Real Estate Contract can be termed as a document carrying all the legal information about the ownership of a specific property. Deed is another document that carries all the legal aspects of any contract being made between the two parties.
Buying a house is an essential commodity to have these days. Human mind works in strange manners. The products of luxury always outplace things of necessity. This is also one of the drawbacks of our civilization that we do not want to settle, so why there is a need to buy a house? This kind of approach towards oneself and society has ruined many chances and created situations to think twice over our approach. House is not just a house unless you do not bother to think about it in different terms such as an investment and a shelter for future times. Future is unseen and one cannot provide certainty about things to follow.
Mystery revolves around us all the time. Whether you are trying to buy a house or to sell it, there is always a list of things to be prepared of. To know your game and then adhere to the guidelines is the only way to come victorious when everything is over. It is one of the decisions that have got a great emotional value attached. We spend a large part of our savings on buying a house so agree it or not, one should spend extra amount while buying a house or may be weeks. You must prepare a chart of all the houses visited. Compare it one another and then wait for the next opportunity. You may ask yourself that what all needs to be repaired? Has it got enough number of rooms available for future times as well? Are all the utility equipments working properly? It is just a hint and has got tons of other related questions.
Also try to check the yard area. This one particular aspect has got multi-purposes attached to it. An extra space is always handy and it serves well for all leisure time activities. At the beginning while buying a house it might not be considered as a key point but to neglect it completely is another sorry state of affairs. Needs and requirements are the reasons responsible behind every such decision. So, it would be hard to say that which one set of rules would apply to all situations. You just need to get the basics right and hope for everything to follow.
Nowadays, it is also quite easy to get some financial help from different institutions. This one single factor has led to many fruitful investments. Thus, encouraging more and more citizens to come forward, get some help and build a place of protection for oneself and the whole family.
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Closing Contracts
When you are in the process of having a contract closed in Tax delinquent Investment you need to consider a time frame. Remember not to make that contract null and void, so give it a very good time frame of about 60 to 80 days. This is for your security, as well as the sellers, so there is still a way to back out of a contract, if you need to.
But, of course, you do not want to wait 60 to 80 days before you close. You want to close much faster. You want to close, ideally, as fast as possible, because the faster you buy it, the faster you can sell it, and the faster you make money. So, therefore if you work with a title company, make sure you send the sale agreement to the title company, once it is accepted. Tell them you expect them to close escrow on or before a specific date. You want the title to be ready as soon as possible, so if it can be ready the week after the sale that would be best. Then they know that they do not have to wait until the close of escrow. Very often, title companies wait until the very last moment. They are trained to wait on attorneys. They are trained to wait until the day of close of escrow comes and they close a day or two prior to that. The title should be ready a month earlier than close of escrow, ideally.
In my experience sellers are ready after 10 days. Then, they sit there and wait, and if you do not remind them. They just let the paperwork sit there for another 50 days before they say, “Okay, let’s arrange for closing.” So, you want to make sure that you are on top of the situation. Remember, just because they have agreed to sell does not mean that they will chase after you, you still have to do some legwork. This is your investment and it is in your best interest to make sure it goes smoothly from beginning to end.
In Tax Delinquent Investing, follow through is just as important as acquiring and convincing the seller. You will be dealing with third party organizations that is used to playing the waiting game. Remember, this is your money we are talking about. Would you leave a wad of cash sitting around? I think not. Make sure you direct the third parties accordingly so that your investment process can go as smooth and seamless as it can be. Your investment is turned around faster and easier.
Who Controls The Closing Date For Escrow – The Buyer Or The Seller
When you make an offer to purchase a property, you will sign a Purchase or Purchase and Sales Agreement with the Seller. This document will be the binding contract and agreement between you and the Seller and the provisions in that document will spell out certain events which must take place before your escrow can close. Within the Purchase Agreement will be a provision for the scheduled “Date of Closing.” A date is normally filled in when the offer to purchase is made by the buyer. Once your offer is presented to the seller, the seller may choose to change this date before accepting your offer.
Both you and the Seller will come up with a closing date which seems reasonable. The closing date should allow you enough time to apply for and obtain a mortgage, if you will be getting a loan to help finance your purchase, and the seller will choose a closing date which allows ample time to move out and find a new home or property. The closing date which is agreed upon should also take into consideration such contingencies as property inspections, the title report review, and any special circumstances, such as one or more parties being out of town or out of the country, an estate or probate situation, or other complications which may involve legal assistance.
To set a reasonable closing date, both parties need to understand what their individual responsibilities are before closing can occur. You and the Seller should list the tasks you each must perform and then try to calculate a time limit for each of these tasks. The Seller, for example, may find that there are liens or other encumbrances on the title of which he was not aware, and these “clouds” on the title will need to be cleared up before the title can be transferred. The property inspection might show up minor defects which the Seller may be required to repair, or major defects might become evident, in which case you and the Seller may need to come to an agreement as to who will pay for these repairs. These types of events are not unexpected in a property purchase and should cause no delay in the closing, as long as they have been provided for ahead of time. Before setting the closing date, try to think of any situations which must take place before you go to closing.
The Seller may request that the closing date be contingent upon the sale of his present home. This date may be rather arbitrary, but a tentative 30, 60 or 90 day closing date could be set and when the actual closing date can be set, then an addendum to your purchase contract can be drawn and signed by both you and the seller. In this case, you would want to be sure to notify your escrow or closing officer of any changes in the date for closing.
Keeping the escrow officer informed of exact dates is very important, as she will be prorating and calculating certain expenses and credits, such as interest, taxes, and insurance and these will be calculated right up until the day of closing.
The lender may have an important role in setting the closing date. Your loan may take longer than traditionally expected, perhaps you have additional items the lender needs to verify, or perhaps you are self-employed and the lender will require Profit and Loss Statements and other documentation to document your financial profile. Perhaps the lender will require that certain repairs on the property take place before they will agree to fund the loan. To avoid any unnecessary delay in closing by a lender, you might want to consider getting “pre-qualified” by a lender and asking them if they see anything unusual in your credit which could hold up your loan. If property repairs are required, you could ask that money be held in escrow for these repairs, rather than hold up the agreed upon closing date.
The closing agent may have a role in controlling the closing day. Check with the escrow officer to get an idea of how long it will take to issue the title reports and how long it will take to prepare the closing documents.
Schedule your closing as soon as possible in the transaction, as escrow officers often are busier on some days than others and you would want to be sure to reserve your time and day. When scheduling your closing with the title or escrow company, let them know that you want ample time to go over and review all the paperwork. Oftentimes, Buyers and Sellers are rushed through this critical process, as the closing agent may have a busy schedule that day and these documents are all standard and commonplace to her. Closing agents may forget that each provision and each commitment listed in a document may be new to the party and will need to be explained carefully.
When an attorney is involved in the transaction, whether representing the Buyer or the Seller, normally the attorney will explain each provision in detail. Keep in mind that the escrow officer or closing agent is a neutral third party only. The title company cannot give legal advice or interpret documents for you. The closing officer can explain each item and review how the numbers were calculated, but for any legal opinions, you will want to consult with your attorney.
When Is Escrow Considered Open?
When you give your deposit to the real estate agent and the signed sales agreement has been signed by both the buyer and the seller, the agent may then “open” escrow.
If there is no real estate agent involved in your transaction, the escrow may be opened by either the buyer or the seller. When you first make your offer to purchase a property, you typically give a good faith deposit check.
The real estate agent will deposit this money into their company “escrow account”, to be held until the seller has signed the agreement and all the terms of the purchase have been mutually agreed upon. Escrow is not open until the good faith money is actually placed in the hands of an escrow agent. This may be a title company, an independent escrow company, an attorney, or any other authorized closing agent allowed in your state.
Upon depositing the buyer’s deposit money with a closing agent, escrow may be considered to be “open” and a file number given for the escrow. An escrow officer or closing agent will be assigned to your account, and this person will follow your escrow all the way through the closing process.
The escrow agent will be your main contact at the title or closing company. Any questions in regard to your title report, escrow money, obligations under the escrow, or progress reports should be directed to this person. Although there are many steps involved in processing your escrow and several different people working on your escrow, such as searching the title, preparing the title insurance policy, processing the loan documents, your contact at the title company will remain the escrow officer.
As a party to the escrow, you are entitled to call the escrow closing agent at any time to request information or explanations.
The Property Recording System
Virtually every county in the United States has a place where records of title are publicly recorded. The recording system gives constructive notice to the world of the transfer of title to property. Recording simply involves bringing the original deed to the local county courthouse or clerk and recorder’s office.
The original deed is copied onto computer or microfiche, recorded in ledger books (or computers), then returned to the new owner. There is a filing fee for the deed, which runs about $8 per page. In addition, the county, city and/or state may assess a transfer tax based on the value of the property or the selling price.
Practical Tip
If you are trying to find out how much someone paid for a property, simply read the edge of the deed. The recorder usually prints how much transfer tax was paid on the margin of the deed. If you know the tax rate for transfers in your county, simply do the math backwards and you will discover what was paid for the property, even if the purchase price is not stated on the deed.
Grantor/Grantee
The most common indexing system is by grantor (the person conveying an interest, usually the seller or mortgagor) and grantee (the person receiving an interest, usually the buyer or mortgagee). All documents conveying property or an interest therein (deed, mortgage, lease, easement, etc.) are recorded by the grantor’s last name in the grantor index. The same transaction is cross-indexed by the grantee’s last name in the grantee index.
Geographical Index
A few areas of the country use a geographical grid system. By locating the property on a grid map, one can obtain all records of transfers and liens on the property.
Torrens Title Registration
A few areas of the country use a title registration system, which is much like a car title registration. Proof of ownership is presented to the county recorder, who then issues a certificate of title. The certificate of title is conclusive proof of ownership.
Recording Statutes
Every state has a recording statute which dictates who wins in a battle over ownership. For example, what happens if John gives title to Mary, then he gives it again to Fred and Fred records first? What happens if John gives a mortgage to ABC Savings and Loan, but the mortgage is not filed for six months and then John borrows from another lender who records their mortgage first?
Most states follow a “race-notice” rule, which means that the first person to record his document, wins, so long as:
1. He received title in good faith, and
2. He paid value, and
3.He had no notice of a prior transfer
Example. John buys a home, and, in doing so, borrows $75,000 from ABC Savings & Loan. John signs a promissory note and a mortgage pledging his home as collateral. ABC messes up the paperwork and the mortgage does not get recorded for 18 months. In the interim, John borrows a $12,000 from The Money Store, for which he gives a mortgage as collateral. The Money Store records its mortgage, unaware of John’s unrecorded first mortgage to ABC. The Money store will now have a first mortgage on the property.
Example. Fred sell his home to Ira, who forgets to record the deed. In the interim, Fred gives a deed to his daughter, Susan, as a gift. Susan records her deed. Susan will not defeat Ira’s ownership, since Susan did not pay value for the property.
Tax Prorations At Closing Time
Among the various items which will be prorated, or shared between the buyer and seller at the closing will be real estate property taxes. Although prorations are normally pretty straightforward and easy to understand, property taxes can be a problem if provisions are not made for an increase in tax assessment which may occur after the close of escrow.
Often the closing agent must use the taxes from the previous year to compute the prorations for the sale. Let’s say that your escrow closes in September and that the new taxes will not be available until November. If the taxes go up, are you responsible for new taxes for the whole year since you only lived in the property for 3 months? One answer to this problem is to sign a Proration Agreement, whereby the buyer and seller agree to make up the difference among themselves.
Many times it is common to ask the seller to pay a little extra in real estate taxes above the daily proration fee, because in many areas property taxes rise each year and the exact amount of the next bill may not be known. Oftentimes, the seller is asked to put up 110% of the daily fee to cover any increases.
Once escrow is closed, it would be difficult to go back to the seller and ask him to pay you for any additional property taxes. Likewise, you would not want the seller to come back to you and ask for a refund if the property taxes were to go down.
To prevent any misunderstandings, ask you escrow officer, attorney, or real estate agent about the property tax prorations, and find out when the property tax assessment is scheduled to be made in your state. Tax assessment dates vary from state to state. In California, for example, taxes become an outstanding debt against property on the first day of March, even though they are not payable until considerably later.
The full fiscal year for property taxes in California runs from July lst to June 30th, and it is divided into two halves so that payments may be made in two installments. In Illinois, as another example, property tax payment dates vary. Larger counties typically schedule them for March lst and September lst, and smaller counties schedule them for June lst and September lst.
Simultaneous Closings
A simultaneous closing, sometimes called “table funding,” is a transaction in which the seller sells the property, carries a note, and then sells the note at the same time the property sells, or within a very short time afterwards. This type of transaction falls in a gray area of the law. It could be considered a loan disguised as a sale.
The logic behind this questionable condition is that the seller never intended to carry the note, and if we bought the note, we could be considered a lender because we would be the first party to provide money.
If the transaction is judged a loan, the note broker and the note buyer could be required to comply with all licensing and disclosure requirements of the law. Failure to do so could result in severe penalties.If the transaction is judged a loan, it could also be considered as a usurious loan, charging an illegally high interest rate. This could also result in severe penalties.
Therfore, we only buy notes that are “old and cold,” where we entered the picture after the note was created and one or two months have gone by.