Legal Issues: Title Closing & Costs

Question 1

Title

Answer 1

Legal term for a bundle of rights in a piece of property in which a party may own either a legal interest or equitable interest.

• legal ownership of property in the public records
• the title of the property has to be “clean” and “marketable”
• One can order a Title Report through a Title insurance Company to ensure that the title on a property is clear and marketable

Question 2

Marketable Title

Answer 2

A title that a court of equity considers to be so free from defect that it will legally force its acceptance by a buyer.

Question 3

Title Search

Answer 3

An examination of the public records to determine the ownership and encumbrances affecting real property
-might include searches on municipal compliances, zoning codes, fire codes, outstanding building violations, occupancy issues etc.

Question 4

Chain of Title

Answer 4

The sequence of historical transfers of title to a property. It runs from the present owner back to the original owner of the property. (usually going back about 40 years)
-each time property changes hands, issues can arise that may affect a future party

Question 5

Abstract of Title

Answer 5

A summary of all of the recorded instruments and proceedings which the title to property, arranged in the order in which they were recorded

Question 6

Title Insurance

Answer 6

A policy of insurance which indemnifies the holder for any loss sustained by reason defects in the title. Takes care of liability.

Question 7

CATTL (used at closing)

Answer 7

Checks
ACRIS (transfer tax documents) 
Title
Transfer (stock/lease or deed)
Loan

Question 8

Closing Statement

Answer 8

A document commonly used in real estate transactions, detailing the fees, commissions, insurance, etc. that must be transacted for a successful transfer of ownership to take place.
-each party will have their own closing statement pertaining to their own issues

Question 9

Role of Broker/Salesperson at the Closing

Answer 9

-Bring the purchaser on a walk through prior to closing
-the walk-through allows the client to observe any changes in the condition of the property, that may be the owner’s responsibility to fix
-Helping to usher the deal from start to finish
-Take stock on condition of the property at CONTRACT date (before closing date)
(Title insurance representative attends the closing of real property to ensure that the title is transferred properly)

Question 10

Payment of Commission

Answer 10

As an agent, it is recommended that you inform your client’s attorney what the commission may be in the transaction

Question 11

HUD-1 Statement

Answer 11

A document that provides an itemized listing of the funds that are payable at closing (stems from RESPA)
-prepared by the lender’s attorney
-if not bank in deal, no HUD-1
(-loan docs, good faith estimate )
-is submitted when there is a loan present in transaction
-final official statement of cash flow in transaction

Question 12

Constructive Notice

Answer 12

Information or knowledge of a fact imputed by law to a person because the person could have discovered the fact by proper diligence and inquiry.

Question 13

Actual Notice

Answer 13

Notice delivered in such a way as to give legally sufficient assurance that actual knowledge of the matter has been conveyed to the recipient

Question 14

Purchaser’s Closing Costs

Answer 14

-Immediate upkeep cost
-mortgage principal
-mortgage interest
-common charges
-maintenance charges
-HOA dues
-Appraisal fee (appraisal often done by the lender)
-Inspection fee
-Title insurance (lender also requires title insurance)
-Mortgage Recording Tax = a recording tax is paid on a condo or house but NOT a co-op
-Move-in deposits
-Escrow deposits
(As an agent you should keep track of all the items that must be paid by the buyer to the seller (or vice versa) and any items that need to be refunded)

Question 15

Seller Closing Costs (always greater than for the purchaser)

Answer 15

-State transfer tax (1%)
-The NYC transfer tax (1%)
-“Mansion Tax” an additional real estate transfer tax is paid by the buyer when the purchase price exceeds 1 million $. The value of the tax = 1% of the purchase price
-Broker’s commission (typically 6%)
-Flip tax (2% for co-ops and condos)
Total = about 10%

• Capital Gain Tax (for out of state sellers) 9% of the gain
• Tax Liens (if any)
• Filing fees

Question 16

Credits

Answer 16

A bookkeeping entry on the right side of an account, recording the reduction or elimination of an asset or an expense, or the creation of or addition to a liability or item of equity or revenue.

Question 17

Debits

Answer 17

The amount charged as due or owing. That which is due from one person to another.

Question 18

Proration

Answer 18

Adjustments of interest, taxes, and insurance, etc., on a pro rata basis as of the closing or agreed upon date. Allocation of closing costs and credits to buyers and sellers.

Question 19

Closing Statement

Answer 19

A document commonly used in real estate transactions, detailing the fees, commissions, insurance, etc. that must be transacted for a successful transfer of ownership to take place

• accounting is what matters at the closing table
• typically prepared by ALL parties, done with care
• balance of funds, payments of purchaser’s loan proceeds, payment of balance (transfer of funds between purchasers and seller)
• transaction costs need to be paid to 3rd parties
• When calculating the loan fees, it is safe to assume 0.5-1% of the loan amount
• (Co-op apts don’t pay real estate taxes directly)

Question 20

Title Closing

Answer 20

The process in which the title company oversees the closing or document signing of the loan in close conjunction with the entity performing the escrow function on the loan

Question 21

A Conflict of Rights

Answer 21

A previously granted option to purchase the property may negatively affect a property