Questions and Answers about Settlement of Your Home
Purchase in Maryland or Virginia
Question about buying foreclosures.
Question: I hear that there are a lot of opportunities in the foreclosure market today. Since the home owner defaulted and were foreclosed, how can we be sure we're getting a "clean" title to any property we would wish to buy?
Answer: The short answer to your question is that you should choose a title company that will carefully examine the title to the property prior to conducting the settlement on your purchase. In addition, at the settlement you should buy an Owners Title Insurance Policy. This policy will insure against the possibility that the title is not "clean." If there is an allegation that there was a defect in the foreclosure action, or some other irregularity that might result in another party having an interest in, or lien against, the property, the title insurance company would provide a legal defense. If that defense should prove unsuccessful, the title insurance company would pay to correct the problem or compensate you for your damages.
A more detailed answer entails a brief description of the foreclosure process. When someone borrows money to purchase or refinance a property, he or she will sign a document called a "deed of trust" (which we commonly refer to as a mortgage). This document, in a nutshell, provides that if the borrower does not repay the loan, the borrower is giving lender the right to sell the property and use the proceeds of the sale to repay the loan. The process of selling the property is called a foreclosure. The foreclosure process is governed by the statutes and rules of the state where the property is located. In our area, Maryland, Virginia, and the District of Columbia each have somewhat different procedures. In addition there are Federal statutes (including the Bankruptcy Code if one of the parties were to file bankruptcy) and Constitutional protections which impact the process. All of the jurisdictions require, after a default, some kind of notice to the borrower and other parties (including the Internal Revenue Service) that may have an interest in the property. A sale date and the terms of the sale will be published in a local newspaper. The sale itself is an auction conducted by the Trustee named in the Deed of Trust, and is commonly conducted on the courthouse steps. Some jurisdictions require court approval to finalize the foreclosure; in others there is no court involvement unless some party challenges the sale. Finally, there is the transfer of the property from the Trustee (who stands in the shoes of the property owner) to the purchaser in exchange for the amount bid at the auction.
I take it from your question that you are looking to buy properties from purchasers after they have obtained title as I have just described. You could also bid at foreclosure sales yourself, and buy properties in that manner. Finally, you could negotiate with property owners and their lenders and purchase properties before they are sold at auction. In the latter situation, a lender may be willing to release its security interest in a property for less than the full amount owed on the loan. This is what is commonly known as a "short sale."
When we conduct a settlement for the purchase of property in any of these scenarios, we go out of our way to research the land records and court records to make sure that all procedures have been scrupulously followed and that the purchaser is receiving clean title, without claims against his or her ownership or liens against the property. Nevertheless, there are circumstances (not the least of which is fraud) where a problem might not surface until after your purchase. In addition, there are situations where someone claims an interest or lien, but it takes legal action to prove the claim invalid. Choosing a competent settlement company and purchasing an Owners Title Insurance Policy is the best protection against problems.
Kevin A. Stroud
Serving MD, VA, DC, PA, NJ
Question about Surveys from a consumer:
Q. I have been given a quote of $3,000 for a survey for a 27 acre residential property in Montgomery County, MD. That's a lot of money.
We only paid $200 for a survey on our last home in Gaithersburg.
Why is this one so expensive?
Location surveys normally run anywhere from 150.00-300.00. The location Survey is typically surveying the property around the house. When you get to a house with more acres of land, it tends to get more expensive. The cost might be for a Boundary Survey which is much more involved. A Boundary Survey is the process of finding, identifying, measuring, and reporting the location of the boundary lines of a parcel of land. A boundary Survey will also indicate the extent of any easements, whether burdening the locus parcel or appurtenant to the locus parcel. A Boundary Survey should also reveal any encroachments.
Boundary Surveys are much more expensive because they provide more detail to the property. The more acres you have the more money you pay because it’s a bigger piece of land and more work.
I hope this helps, I don’t know much about the property they are buying so this is just general.
NOTE FROM HOMEFINDERS: If the last survey for the property in question was within recent years, the seller may be able to provide information about that survey company. The previous survey company may be able to provide a "re-issue" for the property at a significant saving, up to 50%.
Homefinders.com and our broker partners has managed the settlement (closing) for thousands of real estate contracts. Our home buyer clients often have many questions about the settlement process, meaning transferring the title to a property in Maryland or Virginia from the seller to the buyer. Settlements are handled by Settlement Companies under the supervision of a licensed attorney. Homefinders has partnered with a title company in MD and VA to provide answers to your questions. If you have questions about the settlement process in Maryland or Virginia, send them to Lenn Harley, Broker, Homefinders.com here . . . . or telephone us at 800-711-7988.
The information contained in the Answers below have been provided by
Settlements in Maryland and Northern Virginia.
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Q. My real estate agent advises that we need to settle with a Title Company. What is a Title Company?
A. The Title Company, also known as the Settlement Company, administers the transfer of the property from the seller to the buyer.
The Title Company researches the title (i.e., ownership) of the property to make sure that the land that you are purchasing is legally in the name(s) of the sellers in order to transfer title to you and to make sure that when title is transferred to you there are no liens on the property other than your new loan(s). Generally speaking, a lien is the entitlement of a creditor to foreclose on property to collect on a debt. Common kinds of liens include deeds of trust, tax liens, judgment liens, and homeowner’s association liens for unpaid assessments.
The Title Company is also the escrow agent for the transaction. We receive the buyers’ funds and the proceeds of any loan taken from the lender for the purchase of the property. We then pay off any existing mortgage(s) (and arrange for the lien securing the mortgage(s) to be released) as well as any other amounts due with respect to the property (e.g., property taxes, water bills, homeowners assessments, other liens to be paid off and released, etc.). The Title Company also pays the real estate agents, lenders, mortgage companies, abstractors, surveyors, appraisers, pest inspection companies, etc. who performed services in relation to the transaction and the fees and taxes charged by the State/County/City to record the deed and any new mortgage. Finally, we pay the Seller(s) their proceeds from the sale of the property.
The Title Company is also an insurance agent for a large national title insurance company. We provide two kinds of title insurance policies. We provide an Owners Policy, which protects the buyer, for example, in the event someone else surfaces after your purchase and claims an ownership interest in the property or someone claims they have a lien which was not cleared during the settlement process. This policy is optional. We also provide a Lenders Policy, which insures the Lender in the event that someone claims a lien superior to their mortgage. Your lender will require that you purchase a Lenders Policy. If there is a claim, the Title Insurance Company will pay for an attorney to defend against the claim, and if the claimant is successful, will pay whatever damages are found up to the purchase price or loan amount in accordance with the policy terms.
The Title Company prepares the deed and other documents necessary to transfer ownership to you. We receive documents from your Lender which it requires for closing. We prepare the Settlement Statement (known as a “HUD-1”) which itemizes all of the receipts and payments. And we conduct the “Closing” or “Settlement” at which time all of the parties concerned sit at the settlement table. At the settlement table the parties review the documents, we answer each and every question that any party may have pertaining to the settlement, and we obtain all the signatures from all parties needing to sign.
After the Settlement, we send the Deed and new Mortgage (known as a “Deed of Trust”) to be recorded in the land records. We pay off the Sellers’ mortgage and make all of the payments described above. We issue the title insurance policies, and we track the payoffs to make sure the liens are released.
Our goal is to see that all parties to the settlement are comfortable with all the details of the transaction and that every item is understood prior to leaving the settlement table.
Q. Who does the Title Company represent and what does the Title Company do for the Buyer?
A. The title company performs services for, and has fiduciary obligations to, various parties for various purposes. Local law and custom entitles the purchaser to choose the title company for their transaction. We are responsible for clearing title and transferring clear ownership of the property to the benefit of the Buyer. We are responsible for disbursing the proceeds for the Seller. We are responsible for recording the new mortgage and following the lender’s instructions. Each of the actions we take during the settlement process is for the benefit of one or more parties and we have responsibilities to those parties for those actions. Some title companies say that they are working “for the Contract.” By this they mean that they are obligated to close the transaction in accordance with the terms of the Real Estate Contract.
Q. What does the Title Company do for the Seller?
A. The Title Company sees that the Sellers loans are paid in full and released in the Land Records of the respective county or city, makes sure any and all liens against the property have been fully satisfied, and disburses the sellers’ proceeds either by check or by wire transfer.
Q. The HUD-1 has a fee of $125 for an "abstract". What is involved in an abstract"?
A. An Abstract of Title is a snap shot as of a date of the history of ownership and any and all liens against the property that you are buying. The Title Company retains an abstractor to conduct a search of the Land Records of the county or city in which the property is situated. The abstractor also reviews court records and any other applicable records to determine if there are any other judgment liens, tax liens, or other liens which might affect the property. The abstract of title is the written report provided to the title company by the abstractor.
Q. What if the title search misses something?
A. If the Buyer purchases an Owners Title Insurance Policy, the title insurance company will pay all attorneys’ fees and the cost of correcting the problem up to the amount of insurance. This includes problems caused because the title search misses something plus other issues that might arise even if nothing was missed. For example, if an heir to the prior owner of the property being transferred appears from 10 years prior to your seller even owning the land, your owner’s title insurance will provide a defense of your ownership of that land. If it is found that you do not own the land, the insurance company may endeavor to negotiate a purchase of the heir’s interest in the property or reimburse you for your purchase up to the amount of Title Insurance purchased.
Q. Are Title Companies licensed?
A. All Title Companies must be licensed with the State in which they do business. Each state has different licensing requirements (except the District of Columbia, which does not license Title Companies at this time). In addition, the Title Company must be an agent of one or more large national title insurance underwriters in order to issue title insurance policies.
Q. The title insurance for the house I'm buying is $3,400. Why is title insurance so expensive?
A. Title insurance rates are based on the price of the property. The more expensive the property, the higher the potential liability for a claim, and the higher the cost of title insurance. Most companies give a “reissue rate” if you can obtain a copy of your seller’s title insurance policy issued 10 years or less before the date of your closing.
Q. How is title insurance underwritten? Can I shop for good rates?
A. The Title Company reviews and interprets the abstract of title and verifies that either that title is clear, or that all issues will be satisfied at closing. If there is an issue, the Title Company takes whatever action is necessary under the circumstances to make sure the Owner and your new lender will get clear title. Once that happens, the Title Company prepares a Commitment to Issue Title Insurance for your new lender. This constitutes our determination that you will receive clear title to your property and the lender will have security for its loan.
Title insurance rates are set by the national title insurance underwriters and are filed with their respective States. Buyers are free to contact different title companies and choose the one with the lowest rate. Please note, there are 2 levels of coverage for Owners Title Insurance Policies; the two have different degrees of coverage, so make sure you are comparing similar types. The names will vary slightly but “basic” and “enhanced” are the generally accepted terms. In general, the cost for title insurance in any given state will be similar among the different companies.
Q. I'm buying a home in Maryland. Can the seller pay for my title insurance?
A. Generally yes, as long as the seller has agreed to pay for it in the real estate contract. On a transaction in the State of Maryland, the Seller may pay for any item that the Buyer would ordinarily pay. However, you should make sure from your lender that it is permitted pursuant to whatever loan program you are using.
Q. Am I covered for title insurance as of the date of settlement?
Q. My lender has included things like the survey and title search and other services in my closing cost estimate. Do I or my agent have to shop for these services?
Answer from Broker of Homefinders.com. NO. You do not have to shop for the services. The title company processing your settlement has arrangements with vendors; surveyors and "abstract" companies who will provide these services as a part of the title services. Homefinders network of agents and brokers will only recommend title companies that provide the services to you as a part of the settlement package. Additionally, the fees for these services are "pass through", meaning that the title company does not charge more than they pay for the abstract or survey.
A. In all cases, you, as the purchaser of the home, have to right by law to shop these services to see how you may save money. All Title Companies and Surveyors are suppose to do the same things, however not all do. Your real estate agent, having worked with many Title Companies (and the Title Company normally orders the survey) would be a very good source of information not only as to cost but as to the accuracy and customer service orientation of the Title Companies as well. Remember as in all purchases, cheapest is not always the most advantageous or most efficient way to go. The lowest cost may lead to more costly errors down the road.
Q. I have a contract to buy a home, but we have not been able to get the seller or the seller's agent to give us the Homeowners documents that my agent says I should have. Can we get these documents from someplace other than from the seller.
Answer from Broker of Homefinders.com. The Contract of Sale and the Home Owners Association Addendum or Condominium provides that you, the purchaser, have the right to rescind the contract within 3-5 days of receiving the documents. You do not have to settle on the purchase if you have not been provided the document. However, if the documents are not provided to you and you elect to settle, you lose the right to rescind the contract. The Contract states:
IF YOU HAVE NOT RECEIVED ALL OF THE MHAA INFORMATION FIVE (5) CALENDAR DAYS OR MORE
BEFORE ENTERING INTO THE CONTRACT, YOU HAVE FIVE (5) CALENDAR DAYS TO CANCEL THIS
CONTRACT AFTER RECEIVING ALL OF THE MHAA INFORMATION. YOU MUST CANCEL THE
CONTRACT IN WRITING, BUT YOU DO NOT HAVE TO STATE A REASON.
A. In this electronic age, many (not most) Homeowners Associations, Townhouse Associations and Condominium Associations (or Regimes) have started to keep their association documents on-line with Document Retention Service companies. You can go to an online pay site and print out these documents for a particular Association or Regime. Another efficient way to procure these documents is to have your Title Company get them for you. A lot of title companies have a good rapport with these Associations and can get a rapid turnaround time for you.
Q. When can I get a HUD-1 prior to the settlement meeting?
This is an age old question and the blight of most Buyers, Sellers, Agents and Title Companies existences. The production of the FINAL HUD-1 (Housing and Urban Development Standard Form 1) Settlement Statement is based solely on the instructions from the Buyer’s Lender. When the documents from the Lender are forwarded to the Title Company the final HUD-1 can be produced.
Most Lenders try to have their settlement documents to the Title Company the day prior to the settlement but sadly that is usually not the case. This usually translates into “if the settlement is in the morning then the package will get there the night before and if it is in the afternoon, the package will probably get there the morning of the settlement”. The Seller’s portion of the HUD-1 will be completed long before the Buyer’s and can be sent many days in advance. The numbers within the HUD-1 may change position wise for the Seller but the bottom line should remain constant.
Q. My contract says and my agent has told me that I must have certified funds
or a bank check for closing.
Why can't I just give you a personal check?
The need for certified funds or a bank check at settlement is that States like Maryland and Virginia are what are called wet settlement states, meaning that funds are disbursed at the table. The Seller is given the proceeds (usually sizeable) after the settlement is completed. If the Buyer were to forward a check to the Title Company that after however many days it took to prove uncollectible, it would invalidate the purchase of the home. The reason for Certified or Bank checks is that the funds have been verified and the Banking institution is guaranteeing that these funds are “good” and collectable thus eliminating any possibility of the purchase being invalidated.
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SEND YOUR SETTLEMENT OR TITLE QUESTIONS TO LENN.