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Understanding The Closing Process

Skilled Professionals Work Behind the Scenes to Make Sure Everything Runs Smoothly

By Maynard & Dennis Title, LLC

When purchasing a home, there are so many details to take care of that the last thing you need to worry about is a problem with your closing. Hopefully, you’ve hired skilled professionals to handle the details and make sure everything runs smoothly.

The behind-the-scenes work begins as soon as your offer is accepted by the seller, which can be anywhere from 30 days to three months before the closing. Here’s how the settlement process typically works.

If you are working with a real estate agent, he or she will place an order with a “settlement agent” as soon as your sales contract is accepted. Depending on what part of the country you live in, the settlement agent can be a title company, an escrow company, or a settlement attorney. Most homebuyers rely on their real estate agent to select a settlement agent—someone they work with regularly and know to be professional, reliable and efficient. However, homebuyers can choose their own settlement agent if they wish.

The settlement agent will oversee the closing process and make sure everything happens in the right order and on time, without unnecessary delays or glitches.

First, a contract or escrow agreement is drawn up, which the settlement agent reviews for completeness and accuracy. The agent will also put your deposit into an escrow account, where the funds will remain until the time of closing.

Next the preliminary title work is done. The title company conducts an exhaustive search of the public records to make sure there are no issues with the title such as liens against the property, utility easements, etc. If a problem is discovered, most often your title agent will take care of it without you even knowing about it. After the title is cleared, they can provide title insurance.

There are two kinds of title insurance coverage—a Loan Policy, which covers the lender for the amount of the mortgage loan, and an Owner’s Policy, which covers the homebuyer for the amount of the purchase price. If you are obtaining a loan, the lender will require that you purchase a Loan Policy. However, it only protects the lender. We always recommend you obtain an Owner’s Policy to protect your investment. Who pays for the Owner’s Policy varies from state to state, so ask your settlement agent about it.

Once the preliminary title work is complete, the title company will issue a title commitment. Meanwhile, the settlement agent is simultaneously coordinating other important details. If the contract calls for a prior mortgage to be paid off, the agent will order payoff figures from the existing lender. If the buyer is assuming the loan, an assumption package will be ordered showing the current status of the loan. Other tasks typically include ordering property inspections, surveys, and termite reports. Each closing is unique, which is why it requires a skilled professional to oversee the process.

Any problems or discrepancies discovered by the settlement agent are reported to the appropriate parties so that they can be corrected. The agent’s role is to facilitate cooperation, coordination, and compliance between all of the settlement service providers.

If you are obtaining a loan, your lender has three days from the time of the loan application to provide you with a Good Faith Estimate of your loan costs. Keep in mind this is just an estimate. The final costs will be outlined on the HUD-1 Settlement Statement prepared by your settlement agent. It is usually provided to the buyer three days prior to closing. Items shown on a typical HUD-1 include costs paid at closing as well as pre-paid costs such as your earnest money deposit or loan application fee.

As closing day approaches, the settlement agent orders any updated information that may be required. Once the settlement agent is satisfied that the paperwork is in order, he or she confirms the date, time, and location of the closing with all the parties involved.

On closing day, all of the behind-the-scenes work is done. While you’ve been busy packing, ordering utilities and coordinating the movers, the closing process has been happening behind the scenes so that your new home is ready for you to move in.

Do You Really Need Title Insurance?

Without it, you could lose your most valuable asset—your home

By Maynard & Dennis Title, LLC

If you have recently purchased or refinanced a home, chances are you have had to get title insurance. What exactly does title insurance cover, and who does it protect—the homeowner or the lender? Do you need title insurance on a refinance if you bought title insurance when you purchased your home? Here are answers to those important questions, as well as helpful advice on title insurance, and whether or not you need it.

Basically, title insurance protects you against problems affecting the title to your home. There are two types of title insurance—a Loan Policy, and an Owner’s Policy. A Loan Policy protects the lender for the amount of the loan, while the Owner’s Policy protects you, the homeowner, for your investment in the property—your equity. In both cases, the title process covers an exhaustive search of public records to make certain the title to the subject property is clear, and covers against future loss if a claim against the property is made.

While discovering an issue with your title can seem rather remote, one out of every four title searches reveals a problem with the title. Examples include tax liens, forged signatures in the chain of title, recording errors, title search errors, undisclosed easements and title claims by missing heirs and/or ex-spouses. These problems would be uncovered in a title search before you even close on your home.

Even after an exhaustive title search is performed and a title policy issued, sometimes a problem may surface that can threaten your home. If you only have a lender’s policy, where the outstanding loan is covered, your equity is not protected. A separate Owner’s Policy would protect you—for as long as you or your heirs have an interest in the property.

With the recent refinance boom that has occurred over the last several years, some homeowners have questioned whether or not they need a new title policy when they refinance. The answer is, you won’t need a new Owner’s Policy, but a lender will require a new Loan Policy because a title search must be performed covering the time since the last policy was issued. It is interesting to note that, even after a title search has been completed, a second search is done just before recording the deed to make sure nothing has affected the title since the initial search, even if it’s only been a few weeks.

Although somewhat remote, there is the chance that unforeseen problems might exist such as a mechanic’s lien from a contractor who claims he/she has not been paid, or a judgment placed on your house for unpaid taxes. The lender will understandably want to make sure the title to the property they are financing is clear.

Rates sometimes vary, and you can certainly shop around and negotiate for the best rates. With the advent of the practice of “bundling” fees into one loan and settlement package, you should be sure to ask if Owner’s title insurance is included.

In some states, the seller actually pays for Owner’s coverage. Be sure to ask about an Owner’s Policy at the time you obtain a Loan Policy.

Remember, title insurance protects you against the potential loss of your most valuable asset—your home.

Title Insurance is Not “Just Another Fee”

During the closing process, ask about an expanded policy to cover post-policy risks

By Maynard & Dennis Title, LLC

Title insurance is little understood by most consumers. In fact, a recent survey by the American Land Title Association revealed that most home buyers think of title insurance as “just another fee” they have to pay to buy a home. They don’t really know what it does, or how it protects them.

A major reason for this is that buying a home has become a rather complex process. There are so many details to take care of that most people rely on the person handling the sale to take care of them—typically their real estate agent. They trust their agent to know the process and do what is required, including ordering services like the appraisal, home inspection, and title work. Since the buyer isn’t directly involved, they may not be knowledgeable about what many of these services entail.

What is Title Insurance?

An Owner’s Policy of title insurance assures that the home you are buying is free of issues that could cloud the title. Prior to issuing the insurance policy and before you close, title professionals conduct an exhaustive search to check for liens, encumbrances, easements, and other problems that could affect the status of the title. If a problem is discovered, title professionals typically take care of it, or notify you so that you can make an informed decision. If a title defect covered under the policy isn’t discovered until after you close, the insurance kicks in to cover your losses.

What are some typical problems that might cloud a title? There may be a lien on the property for unpaid property taxes by the previous owner, or a mechanic’s lien by a subcontractor who performed work on the property and was never paid. Other examples include a prior unpaid mortgage, or covenants and restrictions on the use of the property.

Sometimes there are problems that go undetected during the title search, such as fraud or forgery, a mistake in the public record, or an unknown heir claiming ownership. If this occurs, you would file a claim with your title insurance company.

The truth is, claims are rare in the title insurance business because of the due diligence that is performed before the policy is issued. Most of the premium dollar goes to pay for the upfront costs of performing the title search, and clearing up title issues before you close.