Chp. 11 - Title Closing and Costs Flashcards
title closing
- buyer completes financing arrangements
- seller transfer the title
- both buyer and seller pay taxes, fees and other charges
Attendees at the closing:
1 - Buyers - pays for the property and receives clear title
2 - Seller - conveys property and receives payment
3 - Closing agent - prepares all documents that need to be signed at the closing
May attend but not required: Attorneys, lender representative, real estate agent, title company representative
Buyer and seller must verify all contract terms are fulfilled once verified:
- Mortgage loan is closed
- Existing liens on property are satisfied
- Buyer pays the purchase price for the property
- Each party pays all fees
- Seller delivers the title
deed
most important document at closing since it transfers the property to the purchaser.
Deed is prepared by the seller’s attorney who uses the old deed as a template to prepare new one.
survey
verify the location and size of the property. Also identifies any easements, enroachments or flood hazard
recording the acts
gives the property owner protection from any other titles to the property not recorded in the public record
Constructive notice/legal notice
knowledge of a fact that a person could have or should have obtained.
Best method is recordation of ownership documents in public records specifically title records.
Actual notice
person who has actual knowledge of something through direct experience or communication.
Torrens system
Different from other title recording systems in that title passes only when the conveyance has been duly registered on the title certificate itself
Suffolk County and NY use the Torrens system
marketable title
seller is required to deliver a marketable title at closing. That is so free of defects that the buyer is certain he or she will not have to defend the title.
The seller must have proof of ownership of the property known as evidence of title.
Chain of title
succession of property owners of record dating back to the grant of title
title search
lender will order a search to ensure there are no liens on the property before lending money
clouded title
If there is a missing link in the chronology of owners, the chain is said to be broken
suit to quiet title
to remove the cloud, the owner will need to file a suit which clears the title record of unrecorded claims
abstract of title
written, chronological summary of the property’s title records and other public records affecting rights and interests in the property
title insurance
combines abstracting process with an insurance program. The policy holder is protected against losses that arise from “hidden” defects
Title insurance company:
- Examines all records pertaining to the property’s recorded history
- Reviews risks that might not appear in the public record
- Interprets the legality of the records
- Helps the property owner correct any defects
- Insures the property against economic loss
Both the buyer and lenders should have title insurance. Fee is paid one time when property passes from one owner to another. Stays in effect until property sells again
Homeowner’s Insurance
lenders require the buyers to purchase property insurance so that their interest in property is also protected.
Most common type of insurance is homeowner’s insurance.
Real Estate Settlement Procedures Act (RESPA)
requires parties to certain transactions receive correct figures pertaining to their closing costs.
Applies to residential property, first/second mortgages, federally financed loans
Does not apply to seller-financed loans or to loan assumption
Prohibits any payment or receiving of fees or kickbacks when a service has not been rendered (ie, insurance company can’t pay kickback to a real estate agent or lender for referring a client)
TRID-RESPA Rule
- Lenders must give a copy of “Your home loan toolkit” to every person at the time of application for a loan
- Lenders must provide Loan Estimate of settlement costs at the time of loan application within 3 business days
Closing disclosure
must be be delivered to the borrower 3 days before closing
-itemizes costs due (city or county tax, attorney fees…)
Disclosures after settlement
loan services must provide borrowers with annual escrow statement summarizing transaction prior 12 month period.
closing statement
detailed statement showing all transaction prepared before closing (all debits and credits)
real estate transfer tax/revenue stamps
tax imposed on any deed for real property in NYS. Amount of tax based on how much money seller gets in the transaction.
Tax is due when filing the deed and collected by county clerks through state.
In NY tax is $4 per $1,000 purchase price.
Example: Sale price of the property is $575,000/$1,000 = $575
$575 x $4 = $2,300
NYC Real Property Transfer Tax
Sellers who sell residential property in NYC have to pay an additional NYC Real Property Transfer Tax (RPTT).
Property sells for $500,00 or less the tax is 1% of the selling price. If sale price is over $500,00 the tax is 1.425%
Example:
$575,000 x 1.425% = $8,193.75 would be the additional tax
Real Property Transfer report
required by NYS Office of Real Property. Documents information about property transfers within the state. Form must be submitted with all deeds at time of recording. Fee of $75 for (1-3 family dwellings, residential condo, rural homes, farm property)
For all other types of property fee is $165
FIRPTA Certificate
passed in 1985 requires buyers to withhold taxes equal to 10% of the sale price in any sale or exchange of property owned by a foreigner.
IRS keeps this 10% to ensure that any capital gains on the sale are paid.
Proration
expenses paid at closing are divided equally between buyer and seller like:
-Real Estate taxes
-Insurance
-Fuel
Water/sewer charges
-Rent
-Security deposits
prepaid expenses
items paid in advance and buyer will owe remaining amount (buyer will receive a debit and seller will receive a credit)
accrued expenses/paid in arrears
expenses seller incurred but have not yet been billed for at the time of closing (buyer will get credit and seller will get debit)
12 month/30 day method
calculates amounts due based on 360 day year and 30 day month
- Divide by 12 get monthly rate
- Divide by 30 to get daily rate
- Multiply month rate by number of months seller owned the property
- Multiply daily rate by number of days seller owned property
- Add two amounts to get prorates amount for seller
- Subtract sellers prorated amount from the starting amount to get the buyer’s prorated amount
Jim and Beth have sold their single-family residence to Tim and Sue and are closing on May 17. The real estate taxes for the property are $1,950. What is Jim and Beth’s share of the taxes? What is Tim and Sue’s share?
Total amount: $1,950.00
Monthly amount ($1,950 ÷ 12) $162.50
Daily amount ($162.50 ÷ 30) $5.42
Sellers’ share = $742.14
$162.50 x 4 months (January through April) = $650
$5.42 x 17 days (May 1 through 17) = $92.14
$650 + $92.14 = $742.14
Buyers’ share = $1,207.86
$1,950 - $742.14 = $1,207.86
In the example above, the prorated amounts were sellers’ share = $742.14 and buyers’ share = $1,207.86.
Since the buyers pay the taxes at the end of the year, the sellers’ share of $742.14 will be shown as a debit to the seller and a credit to the buyer.
365 day method
using the 365 day year
1-Divide amount by 365 to get daily rate
2-Multply daly rate by number of days seller owned the property before closing
3-Subtract sellers prorated amount from the starting amount to get the buyer’s prorated amount
Buyers Greg and Jane have arranged to take over Kathy and Al’s insurance policy. The premium is $550 per year paid in advance on March 1. Closing on the property is set for June 11. What is Kathy and Al’s share of the insurance cost?
Total amount: $550.00
Daily amount ($550 ÷ 365) $1.51
Sellers’ share = $155.53
$1.51 x 103 days (March 1 through June 11) = $155.53
Buyers’ share = $394.47
$550 - $155.53 = $394.47
Since Kathy and Al paid the premium in advance, Greg and Jane’s share of $394.47 will be credited to the sellers and debited to the buyers.
closing disclosure
5 page document with official settlement statement used by settlement agents and title companies to itemize all charges for borrower and seller
