The Title and Closing Process does not have to be a confusing or mystifying experience. Once
you understand the basics and the general steps involved in the process you will be in a better
positon both to make more informed choices and to ask the right questions. Knowledge truly is
power as well as the key to success. Accordingly, there are fundamentals that every real estate
investor, participant, buyer and seller should be aware of and understand.
Primary points to consider and keep in mind:
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Every Buyer has the right to choose his/her/their own title company or settlement
attorney in order to comply with any lender’s title insurance requirement or owner’s title
insurance requirement.
Not all title companies are created equal and since in Pennsylvania an attorney is not
required by law to prepare closing documents and conduct closings it is best to find out if
the title company chosen by you has an attorney that will be involved in all aspects of the
transaction.
An accurate title search itself and review of all documents within the chain of title is
crucial and the knowledge possessed by an experienced real estate/title attorney in this
capacity is invaluable.
Not all closing fees are mandatory or fixed.
The amount of applicable transfer taxes can greatly affect the total amount of closing
costs.
Any property taxes that are paid in full will be prorated as of the date of closing and any
property taxes that are unpaid but due within 30-60 days of closing will be collected and
charged typically to the seller on the HUD-1 settlement statement and then prorated
accordingly.
It is vital to understand the line items and nature of fees/costs charged on the HUD-1
settlement statement and how, what, why and to whom such amounts are charged.
There can be issues or problems that arise as to the title and that need resolved prior to
closing; however, typically, any such issues would be known or should be known by the
title company and/or title attorney and either should have been communicated to the
parties involved or remedied well in advance of the closing date.
There can be serious issues that arise with negative consequences to the parties involved
when the deed of conveyance is inaccurately or incorrectly drafted by a non-attorney.
Sometimes, despite all best efforts on part of the parties, the realtors, the lender/bank and
the title company, circumstances beyond the control of such individuals directly involved
cause delays and problems.
The title insurance policy required by a lender/bank when extending either a first
mortgage/second mortgage/home equity loan is referred to as a lender’s policy and
protects the lender’s/bank’s interest and priority status as to the property securing the
loan from any problems with the title that may have occurred before the inception date of
the policy. “Endorsements” to the lender’s title insurance policy are essentially riders to
the insurance policy required by the lender/bank for the purpose of either limiting or
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expanding the coverage provided and do vary depending upon the structure and type of
loan but in residential purchases and/or refinances there are three standard endorsements
required at a fixed cost for each.
The title insurance an owner purchases either when no lender/bank is involved or when
required by the lender/bank in addition to the lender’s policy is referred to as a basic
owner’s policy and protects the new owner from any problems with the title to the
property that may have occurred before the inception date of the policy. Although there
are endorsements available for the owner’s title insurance policy such must be considered
on a case by case basis and are typically more expensive than the lender’s policy
endorsements.
Both mortgages and home equity loans secured by mortgages are liens against the
property that in most cases should be paid off in order to transfer/convey good and
marketable title.
Always review the settlement statement prior to closing and make all efforts to contact
the closing company with any questions/concerns prior to closing.
It is the job of the title company to make sure all time frames are adhered to and to
coordinate and keep on top of all other parties involved whether directly or indirectly.
The entire process differs somewhat dependent upon the nature of the transactionpurchase, refinance, lender/bank financing, cash deal, private financing, owner financing,
commercial, investment-but the goal of the title company in coordinating and facilitating
a smooth transaction which ensures the transfer of accurate, good, clean, marketable title
always should be the same.
Once you generally grasp the primary points, it is essential that you also possess a
heightened understanding of the following specific processes and areas:
-General Processing and Procedural Steps Taken by Title Company and Timeline
of a Standard Residential Purchase Title Order from Start to Finish:
-Order is received by the title company. Such is accomplished either in
the form of sales agreement provided and/or lender/bank requesting that
title work to be done.
-An introductory letter/email is sent to buyer and seller as well as any
applicable realtors/lenders/banks involved. This is done for the
purposes of providing the title company’s contact information and for
obtaining contact information of the necessary parties involved.
-Provided the closing is to occur within 30-45 days the title search is
ordered which consists of a searcher or abstractor conducting a
search of all public records and documents that have been recorded
within the applicable county for a period of sixty years plus a search
of all bankruptcy and child support records as well. The information is
summarized by the searcher or abstractor so that it then can be interpreted
and reviewed by the title company or title attorney and utilized in order to
prepare the title commitment and ascertain what mortgages/home equities
need to be satisfied in order to convey the property. The goal of this step
in the process is to make sure title is good and will be able to be conveyed
free and clear of any liens/issues. This is a crucial area and point in the
process when it is extremely beneficial to have an attorney involved in
reviewing the information. The search can take between one to two weeks
to be completed and ready for review. Once interpreted and reviewed by
title company/title attorney, the information is used to prepare
mortgage/home equity payoff authorizations which are sent to
seller/owner and the mortgage commitment itself which, if there is a
lender/bank involved, must be sent to them.
-Provided that the closing is to occur within 30-45 days the requests
for tax certs/lien letters/occupancy permit/resale certificates/final
meter reading typically are sent out once the search has been ordered.
This is another very important part of the process and it usually will take
approximately 14 days in order to receive the information back from the
municipality. Also, within many municipalities and particularly within the
city of Pittsburgh, a dye test must be conducted and the property must
pass the dye test before any tax info/lien letter info/occupancy info will be
finalized and released to the title company. If there is a listing real estate
agent involved, the agent or the seller pays for and arranges for the dye
test to be conducted. If no listing agent is involved, it is the responsibility
of the seller/owner to pay for and arrange for the dye test to be conducted.
It is very important that this is done either prior to or shortly after an
agreement for sale has been executed. Similarly, the final meter reading
must be conducted by either the listing agent or the seller/owner. The
request form for the final meter reading must be completed and either sent
in to municipality or all information regarding the final reading provided
to the title company so that the title company can submit the appropriate
paperwork in order to receive the final bill. This must be accomplished
and mailed in at least 14 days prior to closing date to ensure that final
water/sewage bill is received prior to closing. It is vital that the title
company be on top of all of this early on and either to verify such
requirements either have been ordered/done or to request that such has be
ordered/completed. Once this information is received by the title
company, such is summarized and used both to determine if any
outstanding taxes/bills are owing, which if so will need to be collected
from seller and paid on HUD-1 at closing, and, if a lender/bank is
involved, will be used to generate a tax certification document that will be
submitted to them.
-Mortgage and/or Home Equity Loan payoffs amounts are requested
and obtained. If there are also other items that must be collected on the
HUD-1 and paid at closing in order to transfer good title such as any
unpaid liens/judgements those amounts are obtained as well at this point.
-If lender/bank involved, the title commitment, CPL, Pre-HUD-1 and
Tax Certification are generated and sent to lender/bank. These
documents are necessary and required by the lender/bank and should be
submitted as soon as possible by the title company. The title commitment
basically summaries the chain of title of the property and details any and
all documents related to such that have been recorded. The CPL or
“closing protection letter” is basically an agreement between the title
insurance company and the lender that indemnifies the lender against any
issues arising from errors, fraud and/or negligence of the title company.
The Pre-HUD has all the fees known prior to closing and that are fixed or
mandatory charges to both the seller and the buyer including any
applicable realtor commissions.
-If no lender/bank involved, documents for conveyance such as the
deed, the owner’s affidavit and the HUD-1 are generated and sent to
buyer and/or seller and realtor for review accordingly. In order to
accurately draft the deed of conveyance, it is crucial that the title
company/title attorney at this point contact buyer in order to clarify how
buyer wishes to take title to the property and to answer any questions
buyer may have regarding title to the property. The owner’s affidavit is a
document that is drafted by the title company in which the owner is
declaring, among other things, to be the rightful, legal owner of the
property and that the property has not been structurally changed within six
months preceding the date of closing. The commission statement from the
realtor, if applicable, must be obtained and added to HUD-1 as well at this
point.
-If lender/bank is involved in addition to preparing the deed and
owner’s affidavit, the final HUD-1 is generated based upon final
information and fees provided to the title company by the
lender/bank. The title company has to work closely with lender/bank to
finalize the HUD-1 and obtain final approval. Once such is accomplished
the HUD-1 is sent to seller/buyer/realtors for review and instructions
regarding funds needed by buyer and/or proceeds provided to seller are
discussed between the title company and the appropriate party.
-The Closing is conducted. The title company is responsible for all
receipt and disbursement of all funds, the recording of transfer and
security documents as well as any other post closing requirements
imposed by lender/bank, if applicable.
- Mandatory or Fixed Closing/Title Fees:
-Charges for title insurance whether for a lender’s policy and/or an
owner’s policy are determined by the state and are mandatory
charges to the buyer unless negotiated and agreed to otherwise within
the sales agreement. The amount of charges varies based upon the
amount of the transaction (loan amount) or the sale price and whether the
transaction involves a sale or a non-sale (refinance). The premium being
charged for title insurance on the settlement statement can be verified or
ascertained easily by an online title insurance rate calculator in which you
simply enter the amount of the loan amount or the price of the property, if
no loan is involved: http://www.alphaadv.net/patitle/ratecalc.html. Some
lenders may require an owner’s policy in addition to a lender’s policy but
if not such is the option of the buyer and always should be properly and
adequately explained to the buyer by the title company. This is yet another
instance in which an experienced, knowledgeable title/real estate attorney
can have a substantial and beneficial impact.
-Charges for endorsements applicable to the lender’s title insurance
policy are required by the lender/bank and are mandatory and fixed
charges to the buyer unless negotiated and agreed to otherwise within
the sales agreement. There are three standard endorsements required and
each endorsement has a cost of $50.00 or $150.00 collectively. The
endorsements are issued by the title insurance company and collectively
cover the lender/bank for title issues related to unknown violations of
restrictive covenants/conditions, unknown matters that might have been
discovered by a current up to date survey of the premises and for
environmental issues. There are endorsements available to the owner’s
title insurance policy that may be beneficial and wise in some instances
but they are more expensive than the lender’s policy endorsements and
necessity for such should be determined on a case by case basis by a
qualified title/real estate attorney or experienced licensed title agent.
-Charge for the CPL or “closing protection letter’ required by the
lender/bank is a mandatory and fixed charge to the buyer unless
negotiated and agreed to otherwise within the sales agreement. The
closing protection letter is a fixed cost of $125.00 that is set by the state
and is payable directly to the applicable title insurance provider not the
lender/bank or the title company.
-Charges for the recording of a mortgage and/or a deed within in
Allegheny County are fixed at $162.00 per document and are
mandatory charges to the buyer unless negotiated and agreed to
otherwise within the sales agreement. All other counties vary within the
range of $50.00-$120.00 per document and rates can easily be found on
the applicable county’s recorder of deeds website.
-Charges for the deed transfer tax are mandatory but vary depending
upon the municipality and unless negotiated otherwise within the sales
agreement are split equally between the buyer and the seller or
qualifying as an exempted transaction. The total amount due is
calculated based on the sale/purchase price and broken down in to a state
portion and a local portion. The state portion is fixed at 1% of the
sale/purchase price and the local portion is fixed at 1% but may be higher
and is in fact higher in many locales within the state. For instance, within
the city of Pittsburgh, the local transfer tax is 3% and many other locales
within Allegheny County as well as other counties within the state have a
higher local transfer tax as well. The amount being charged for transfer
tax on the settlement statement can be verified or ascertained easily in
advance at: www.anytimeestimate.com/PA_REAL_ESTATE_TAX/patransfer-tax.htm
-Charges to reimburse the title company for the cost of all lien
letters/tax certifications/occupancy permits/dye test fees/final meter
reading fees/payoff requests are mandatory charges to the seller
unless specifically negotiated otherwise within the sales agreement but
do vary greatly depending on the municipality/locale. The total cost
for such can range from $50.00 in some areas to $275.00 for properties
within the city of Pittsburgh. The title company should have precise
receipts to verify any and all amounts paid for such and should provide to
the seller upon request requested.
-Charges for county, local, school and library property taxes due and
owing within 30-60 days of closing obviously will vary in amount but
must be charged to seller on HUD-1 and then prorated on either a
calendar year or fiscal year basis as of the date of closing. The seller
and buyer can negotiate and agree within the sales agreement that the
buyer pays for such and/or that the proration occurs differently but the
bottom line is that the taxes always have to be paid and should be correctly
prorated. Most school taxes are prorated on a fiscal basis while city,
county and/or library taxes are prorated on a calendar basis. Within the
city of Pittsburgh and a small number of other municipalities within the
state, the school taxes are collected and prorated on a calendar basis. If
the title search and/or the tax certifications indicate that there are or may
be any delinquent tax amounts owing, the title company must investigate
such and communicate such to the seller/owner. The title company is
responsible for making sure to obtain any and all delinquent amounts
owing and for collecting such amounts from the seller (unless negotiated
otherwise either within the sales agreement or between the parties
themselves) on the HUD-1 at closing so that good, clean title can be
conveyed to buyer.
-Charges to the seller for realtor commissions and/or charges to the
buyer for bank processing fees, origination fees, points, appraisal fees,
credit report fees, flood cert fees, wire fees and/or bank document
preparation fees are variable and particular to the transaction and for
the most part mandatory but do have some limited negotiability at the
onset of the deal being entered into and/or prior to the closing.
Although realtor commission fees technically are negotiable between an
owner/seller and the real estate broker as agreed upon within the listing
contract, the actual realtor may not have much ability to negotiate the
commission down as he/she does have to follow certain rules and industry
customs. Likewise, most loan officers do not have the authority to agree to
waive or negotiate down most loan/bank fees. In some cases though both
the agent and the lender/bank may be able to give a bit on the fee and/or
even waive a smaller fee. So, there is nothing to lose and potentially only
gain by asking what if anything can be done to lessen the costs of the
transaction.
-Discretionary Closing/Title Fees:
-Charges to the buyer and/or to the seller of settlement fees are wholly
within the discretion of the title company and are not mandatory fees.
These fees can vary and can be charged by the title company to each the
seller and the buyer at a cost in the range of $50.00 - $250.00. Many
sellers and buyers don’t understand that this fee is entirely negotiable and
able to be waived by the title company if requested. It is important to
understand that settlement fees are essentially add-on fees and icing more
or less on the cake of the portion of the title insurance premium fee
received by the title company which is really its bread and butter.
-Charge to the buyer or seller of a separate document preparation fee
in a transaction involving a lender/bank is completely discretionary
by the title company. Some title companies try to include this type of fee
to the buyer and/or the seller within the range of $75.00-$350.00 as
another sort of add-on item. This practice is particularly costly to the
buyer when the buyer is also being charged a document preparation fee by
the lender/bank. Be sure to always exam the HUD-1 closely prior to
closing and such a fee is found, request that the title company waive such
fee.
-Charge to seller or buyer of a deed preparation fee is within the
discretion of the title company. Typically, unless negotiated and agreed
to otherwise, the seller pays for the cost of deed preparation which can
range from $95.00-$350.00. Although this is certainly a legitimate fee
charged by the title company, it is not mandatory and can be negotiated or
even waived in some instances. Again, unless the seller or buyer requests
such, the title company most likely won’t offer to lower or waive the fee.
There is nothing to lose by asking and only potentially gain.
-Charges to seller and/or buyer for notary fees, postage/overnight
mail fees and/or title attorney legal/review fees are within the
discretion of the title company. The title company can chose to waive or
to reduce notary fees, postage/overnight fees and any attorney fees
charged as a separate fee by the applicable company’s title/real estate
attorney. The title company probably freely will not offer to do so as
these fees once again would be classified as add-on or icing on the cake
fees so it is up to the buyer and the seller to ask.
The value in educating and informing yourself cannot be quantified and in the long run is worth
more than merely saving a few hundred dollars on a deal or a transaction. It’s the level of selfassuredness and satisfaction that only comes when proceeding in any circumstance with the
appropriate amount of knowledge and the necessary type of information.
For more information on any aspect of the closing process or with any questions relating to a
particular transaction or title issue, be sure to contact jen@citysettlement.com or
joe@citysettlement.com.