Recordation, Title Insurance, & Settlement

Question 1

Public Recording System - Keypoints

Answer 1

• state laws determine policies & procedures that regulate recording; also determine responsibility for organizing & maintaining recorded documents
• recording a document does not provide validity

Question 2

Recording Process

5 steps…

Answer 2

1. Note date & time the doc is filed.
2. Assign recording number.
3. Copy doc into publlic record (photocopy/digital image).
4. List doc in grantor & grantee indexes.
5. Return original doc to indicated party.

Question 3

System Allowances

Answer 3

• allows users to post claims
  
  • gives constructive notice
  • establishes priority of interests (1st in time, 1st in right)
  • grantee who does not record deed rishs having another claim title to property
  • creates position for doc base on recording date & time
• allows users to search claims
  
  • inspect property for actual notice & visible claims
  • inspect public records for contructive notices (liens)
  • buyer’s due diligene to inspect property and public records.

Question 4

Requirements for Recording

Answer 4

• Docs usually recorded:
  
  • deeds
  • mortgages/trust deeds
  • contracts for deed
  • easements
  • long-term leases
• recorded docs should be executed (signed)
  
  • some states require notarization/acknowledgement
• paying recording fee & transfer tax (refer to state law); typically paid when recording the deed

Question 5

Subordination

Answer 5

• clause in mortgage/deed or trust in which lender permits a subsequent mortgage to take/change position for priority.
• allows mortgage to maintain original position
• previous mortgage refinanced? secondary mortgage continues subordinate position

Question 6

Marketable Title and How to Determine

Answer 6

• ownership free from reasonable doubt; buyers goal is to obtain marketable title.
• to be marketable, must:
  
  • disclose no serious defects
  • not expose purchaser to litigation or threaten the quiet enjoyment of property
  • convince purchaser they could sell or mortgage the property at a later time
  • any questions of marketable title have to be raised before acceptance of the deed

Question 7

Title Search

Process & Purpose

Answer 7

• examiner reviews public records pertaining to property
• search is from the present to original source of title
• process used to establish chain of title (successive ownership documents linked together); seeking an unbroken chain
• title clouded if errors or missing documents
  
  • seller will need to clear title to convey the property
• marketable title act will determine how far back the search needs to be conducted.

Question 8

Abstract of Title & Attorney’s Opinion of Title

Answer 8

• ABSTRACT: historical summary of recorded docs affecting title & created through title search
• seller expected to produce updated abstract
• buyer’s attorney examines and determines marketability
• attorney renders opinion of title after tracing chain of title
  
  • shows current status of rights
  • lists objections
  • a.k.a. certificate of title

Question 9

Title Insurance

Answer 9

• contract that protects policyholder from losses arising from defects in the title; protects the insured from an event that occured before policy was issued.
• beset method for determining marketable title

Question 10

Title Insurance - Process

Answer 10

After examining the public records, title company will:

• issue title report (current condition of title) and commitment (execptions/defects/encumbrances not included in policy)
• buyer can offer objections prior to closing

Question 11

Standar Coverage Title Ins. Policy

Answer 11

• protects against all problems found after closing; excludes exceptions found before closing & listed in title report.
• covers matters of record including:
  
  • errors in title examination
  • errors in abstract
  • errors in public record (misfiled documents)
  • hidden defects (forgery, incompetency, misrespresented marital status, etc.)

Question 12

Extended Coverage Title Insurance Policy

Answer 12

• protects the same as standard policy does as well as problems not​ a matter of public record such as:
  
  • parties in possession/adverse possession issues
  • matter of survey (encroachments)
  • gap period (time between issued commitment date & date deed is recorded)

Question 13

Types of Insurance Policies

Answer 13

• Owner’s Policy: protects owners/buyers & heirs while they hold interest
  
  • cost based on sale price of property
  • paid for by buyer/seller/party listed in contract
  • coverage continues until property changes title
• Mortgagee’s Policy: protects mortgagee/lender
  
  • coverage base on loan amount
  • often paid by buyer, but seller could pay if in contract
  • coverage diminishes with each payment and ceases to exist when loan is satisfied

Question 14

Suit to Quiet Title

Answer 14

• court hearing to determine ownership, recognize valid claims, & quiet invalid claims.
  
  • used to clear title & est. ownership under adverse possession
• lis pendens is filed & all parties must present evidence of the claim in court
• coourt hears & judge claims
• once court order is recorded, the cloud on the title is cleared

Question 15

Enivronmental Issues

RE Agent’s Role & Key Points

Answer 15

• Fall under EPA
• RE should know:
  
  • issues common to area
  • signs of contamination
  • inform & suggest investigation into any EI
• Considered material facts - must disclose
• If broker/agent suspects, must be disclosed
• Broker/agent should suggest inspection, not inspector
• Properties w/high contamination levels may need cleaning before selling can take place

Question 16

Asbestos

Answer 16

• Building material - can cause respiratory diseases
• Used before 1978 in many bldg materials (pipe, insulation, flooring, siding, etc.)
• Harmful if fibers are friable (broken & airborne)
• Bldg demo’d or reno’d, abatement (removal) done prior to
• Encapsulation (sealing in place) is the best alternative (no exposure to friable fibers)

Question 17

Lead-based Paint - What it Means

Answer 17

• elevated lead levels can cause neuro disorders; pregnant women & children most at risk
• Fed law requires sellers to disclose if house built before 1 - 1 - 1978

Question 18

Lead-based Paint - RE Requirements

Answer 18

• RE Responsibility:
  
  • Disclose location of any known LBP
  • Provide any reports
  • Give EPA pamphlet on lead poisoning
  • Offer buyer 10-day option period
    
    • Buyer may waive
    • If not waived, buyer may terminate during 10-day inspection period
  • Sellers not required to do inspection or removal
• Listing Broker: responsible for having signed acknowledgements from buyer, seller, and RE agents.
• Prop managers/landlords required to give similar disclosure and EPA pamphlet
  
  • Tenant/Renter does not have to be given opportunity to test or have removed

Question 19

Lead-based Paint - RRP Program of 2010

Answer 19

• Renovation, Repair, & Painting Program
  
  • covers any professionals performing work that disturbs LBP
• Professionals dealing with LBP must:
  
  • be certified in containment & cleanup
  • provide owners with Renovate Right brochure before starting work
  • prop owners working on personal prop exempt, but must be in compliance if working on rental property
    
    • considered material fact if reno done in violation of this.

Question 20

Radon

Answer 20

• naturally occuring odorless, radioactive gas
• moves from ground to atmosphere
• creates hazard when trapped in a building
• can cause lung cancer
• impossible to detect w/o testing, done by a professional
  
  • will recommend plan for mitigation (plan to lower levels)
• typically mitigated by adding ventilation systems to move gas out of bldg

Question 21

Carbon Monoxide (CO)

Answer 21

• odorless gass, byproduct of combustion
• improper vetilation/equipment malfunction can cause a build-up, leaing to death
• can be detected with CO monitor/detector
  
  • many states require this
  • inspectors should test for build-up

Question 22

Mold

Answer 22

• toxic mold created by excess moisture
• can grow anywhere there is water, oxygen, & organic food source
• if found, can be harmful and requires remediation (removal)
• no federal disclosure laws
• buyers can have inspector test for it
• brokers should be aware of indicators (musty smell, water damage, high humidity, water leaks, etc.)
• may not be covered by homeowner’s insurance

Question 23

Environmental Impact Statement (EIS)

Answer 23

• Describes potential impact of a proposed project on local & regional:
  
  • air
  • wetlands
  • land
  • environment
• mandatory for gov’t projects & poss. required for private development

Question 24

Real Estate Settlement Procedures Act (RESPA)

Answer 24

• standarizes closing practices for 1 to 4 family res properties financed by federally related loans
• regulates lenders, title companies, & RE licensees
• requires lenders to give GFE (Loan Estimate) of all closing costs w/in 3-business days of application
• requires lenders to give HUD-1 (Closing Disclosure) at closing
• restricts amount of advanced escrow pmts & prohibits kickbacks

Question 25

Escrow and Closing

Answer 25

• some states use escrow agents for their closings
• some states have closing across the table (NOT TEXAS)
• escrow agent/holder is disinterested party, assists carrying out transaction according to purchase contract
• listing brokerage firm normally responsible for over all closing (NOT TEXAS)

Question 26

Closing Statement - What is it/What does it do?

Answer 26

• account of each party’s debits & credits
• debit to buyer: anything that increases amt of $ to bring to closing (sales price, brokerage fee, new loan origination fees, etc.)
• credit to buyer: anything that decrease amt of $ brought to closing (earnest money, new loan amount, interest on assumed mortgages, etc.)
• debit to seller: anything that decreases amt of $ they walk with (brokerage fees, owner’s title insurance, payoff of existing loan, etc.)
• credit to seller: anything that increases amy of $ they walk with (sales price)