This guide is designed to help buyers, sellers, brokers and agents, and persons refinancing residential real estate loans, understand the services provided by Potomac West Title and expenses encountered in closing a residential real estate resale or loan refinancing transaction. The Consumer Finance Protection Bureau , the Federal agency established under Title XIV of the Dodd-Frank Wall Street Reform and Consumer Protection Act, to oversee the real estate closing process, has also issued a Settlement Cost Brooklet which you may find helpful in understanding the closing process.
The real estate closing process begins on receipt of a contract for resale of a property or notice from an owner of intent to refinance. Shortly after receipt of the contract or notice, we send letters to all parties (i.e., buyers/borrowers, sellers, brokers, agents, lenders) advising each of our duties and responsibilities, along with an estimate of the title/recording-related expenses of the closing.
An information packet is sent to buyers and sellers in resale transactions, explaining specific aspects of each side of the closing. A similar packet is sent to refinancing borrowers. Next, the title to the property involved is searched, abstracted and examined to assure buyers or borrowers that title is good and. marketable and to insure any new lender of a valid priority lien on the property being purchased or refinanced.
We order and examine a house location survey (not required for a condominium) to determine that the property is free from encroachments or other boundary-line disputes, that the house location complies with local ordinances and applicable restrictive covenants and to determine the existence of any easements or other conditions affecting the property.
On refinancing transactions, if a survey is required, where possible, we order a re-certification of the borrower's previous house location survey. On most refinancing transactions, however, a survey is not required. Occasionally, a lender may require an owner's affidavit stating that there have been no changes to the property since acquired.
We contact existing lien holders and determine procedures necessary to release those liens. These include lenders where notes are to be paid off and trusts released as part of the transaction and judgment creditors and governmental lienors, where applicable. If we find any defects in or clouds on the title or encroachments or boundary-line problems on the survey, they must be removed, resolved or reconciled to the satisfaction of all parties to the transaction before closing.
A title insurance commitment is secured and issued to the buyers/borrowers and new lenders informing them of the quality and marketability of the title, specifying the steps to be taken and conditions to be met to deliver marketable and insurable title and to give a valid priority lien to any new lender.
Insurance and Inspections
Lenders require buyers/borrowers, either as home purchasers or as refinancing parties, to provide assurances that the property will be adequately covered by fire, hazard and liability insurance. For individually-owned residences, an all-risks' policy in an amount not less than the replacement cost of all the improvements on the property must be secured. The first year premium must usually be paid on this policy before settlement and a paid receipt, with an original policy, provided to all new lenders. In condominium cases, a certificate of insurance must be obtained from the condominium association or its insurance carrier. In any case, the insurance policy or certificate of insurance must contain a loss payee or additional insured clause insuring all lenders against loss.
A certificate indicating the property is free from termites and other wood-boring insects and that there is no visible damage from infestation must be obtained before closing on resales. If there is damage or infestation, repairs or treatment must usually be completed before closing. Sellers are customarily responsible for securing this certificate on resale. Often, however, where a real estate agent is involved, the agent will order the inspection for the responsible party.
Powers of Attorney
When one of parties to a settlement will not be present at the closing, an attorney in fact must be appointed and a written special power of attorney obtained. Many lenders have peculiar requirements concerning powers of attorney and most require advance notification of the intended use of a power of attorney. Most also insist that, before closing, they have an opportunity to approve the form of power of attorney to be used. A power of attorney often must specifically cite the property involved in the transaction. Sometimes it is necessary to include certain specific powers, such as the power to exercise a VA eligibility entitlement when securing a Veteran's guaranteed loan.
Potomac West Title will arrange for a power of attorney for any party to a real estate transaction we are closing without charge (prepared by our affiliated law firm LLOYD MARTIN PLC). If it is prepared by someone else, it is essential that we have a copy of it early to review it for legal sufficiency. It will also be necessary for the original to be presented at closing.
Finally, where it is necessary to record a power of attorney among the land records (e.g., where the attorney-in-fact executes the deed of conveyance), the format of the power of attorney must meet the Virginia statutory micro-graphic standards. In short, contact us early where a power of attorney is to be used to avoid last-minute problems.
Closing and After
The "closing ceremony" occurs when all parties come together for final approval of their respective parts of the transaction. A Settlement Statement is prepared for all parties to review. In November 2013, the Consumer Financial Protection Bureau (CFPB) integrated the Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA) disclosures and regulations. Any transaction involving a consumer mortgage will use new CFPB disclosure forms. The new TRID rules and forms took effect on October 3, 2015.
The settlement statement, formerly most often the form HUD-1, for the borrower has been replaced the buyer's Closing Disclosure (CD), which combine the lender's good faith estimate of closing costs with the truth-in-lending form and the final purchaser/borrower's settlement costs. In any event, the intent is to account for all the funds coming into and going out of the transaction, and serve as a vehicle for final and full disclosure to sellers and buyers or borrowers of all third-party charges associated with the transaction and serve as a document within which to compare the lender's costs estimate with the actual final closing expenses. The new CD covers only the borrower's side of the transaction, which is fine for refinancing. For resale transactions, however, a separate disclosure documents is used for the seller's side of the closing.
In the case of sellers, no standardized closing documents has been developed by the CFPB, so Settlement Agents will be using a variety of forms, but whatever form is being used it will have he same purpose, the account for all funds coming into and going out of the transaction which affect the seller. In a resale transaction, after review and approval of the settlement statements by all parties, the sellers execute the deed of conveyance transferring title of the property to the buyers. We review and explain, in detail, these important documents to both buyers and sellers.
Next the sellers execute various affidavits and certificates assuring the property is free of encumbrances, other than those found on record, and to comply with the assorted Virginia and Federal tax-reporting requirements. Sellers, when finished with the transfer side of the closing, depart. We then review and explain to the buyers or borrowers the legal meaning, purpose and effect of the various instruments involved to complete the loan transaction and give buyers or borrowers an explanation of title insurance and the opportunity to select the form of title insurance desired for the property.
On resale transactions, not later than the morning of the first business day following settlement, documents are taken to the Clerk's Office of the Circuit Court in the City or County where the property is located for recording among the land records. On refinancing transactions, Federal law often mandates a waiting period of three business days during which borrowers may cancel the loan without explanation.
On these transactions, documents are taken to the courthouse for recording the first business morning after the expiration of the three-day cancellation period. Before recording, a final "bring-down" title exam is conducted to assure clear title for the property up to the exact moment the Clerk of Court accepts the documents for recording. We begin disbursing funds involved in the closing immediately upon receipt of verification of recording and favorable completion of the bring-down title exam.
There are two kinds of title insurance policies. The lender's or loan policy and the owner's policy. Your mortgage lender will likely require that you purchase a mortgagee title insurance policy to protect the lender's investment in your property - the loan. However, the lender's policy insures only the lender against title defects that might affect the security of the mortgage loan - it does not insure you against any loss! With lender's coverage only, if there is a claim against your title, the title insurance company will only defend the lender's interest in court and will only bear the cost of settling the claim for the benefit of the lender - any claim paid will be to the lender and not to you!
The lender's title insurance policy is generally issued only in the amount of the mortgage and the insurance amount decreases as the mortgage loan is paid down. You should consider owner's title insurance to protect your own ownership - for as long as you and your heirs own the property - even if you initially have only a small amount of equity in the property to be insured. Your equity will increase as time goes by, plus if there is a claim made against your title, the amount of equity is irrelevant in determining whether a legal defense should be undertaken on your behalf. If you don't have owner's coverage, the title company will not defend your interest and will not pay you for any loss you may suffer as a result of the claim. If you are refinancing, you may already have an owner's policy and there may be little benefit to purchasing a new policy. If your are purchasing a property, even in instances where you may begin with little equity, an owner's title policy is always a wise investment.
When you secure an owner's policy at the same time your lender orders its mortgagee policy, your policy premium will be substantially lower than if you were to purchase only owner's coverage for the property at a later date. Potomac West Title is an agent for First American Title Insurance Company and will secure a title commitment and policies from First American Title, a national leader in the title insurance industry, which is part of The First American Financial Corporation, a Fortune 500 company, and is rated A” by Demotech, Inc., an independent rater of title insurance companies. If you desire the policy to be placed with some other company, you must notify us in advance of closing.
Our usual closing fee charged to buyers or borrowers is $350.00 to $450.00 ($400.00 to $500.00 for refinancing) and $350.00 to $450.00 to sellers. We charge a fee of $75.00 to secure the release of each deed of trust or judgment lien on the property, or refer the monitoring of each release to reQuire, a firm which specializes in tracking releases: reQuire's fee per release is $35.00. Our affiliated law firm, LLOYD MARTIN PLC will prepare a deed for a seller for a fee of $150.00. If you compare these prices to those of our competitors, be sure to compare all charges - not just the "closing fee."
Many of our competitors have hidden costs, such as mark-ups in courier fees. Also, we do not charge extra for preparation and filing of the IRS Form 1099-B or Virginia taxation forms for sellers and we will prepare powers of attorney for any party to a transaction we close without charge.
In any real estate loan or transfer closing, there are numerous additional expenses over which we have no control. These include commission on any resale, inspection and inspection report fees, lender charges, recording fees and taxes, survey and hazard insurance expenses and courier charges, to name a few. Lender charges vary with each loan being placed and you should request the lender's good faith estimate of lender's closing costs. Estimates of some of the most common additional expenses related directly to the closing are as follows:
Our Pledge of Quality Service
We pride ourselves on the quality and excellence of our service to our customers and clients. However, we are not perfect, so if we do not give you the service you expect, in both a timely and cost-effective manner, tell us. We also believe that our competitive prices always give you value for your dollar. Please tell us if you disagree!
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