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Understanding Your Title Commitment

A commitment for title insurance is a report your title company prepares containing information about your current or prospective real estate. If the requirements of the commitment are met, we are bound by law to issue you a “title insurance policy.” The policy is ultimately what insures your ownership in the real estate.  However, the commitment is the document you will receive prior to closing.  After entering into a contract, you will receive a commitment from your title company.  This is your opportunity to understand whether there are any defects in the title or whether there are certain liens or easements that will prevent you from purchasing the real estate.

The first few pages of your title commitment will include a commitment jacket full of standard information and a privacy policy that is not transaction specific. I have omitted these pages from this post to focus our attention on the information about your real estate. The below diagram points out the highlights of your commitment.

Even with this diagram, understanding a title commitment can be confusing. If at any time you have questions regarding your title commitment or any phase of the transaction, please feel free to contact our office.  We are here to help and answer any questions you have.  That’s our job!

Understanding Closing Statements

A few days before your closing, you can expect to receive a document or two called a Settlement Statement and maybe even something called a Closing Disclosure. These documents can look a little intimidating, but we can give you some pointers to help you understand what is going on.

For cash transactions or transactions with in-house financing, you can expect to receive a simplified Buyer’s or Seller’s Statement. This simple statement is set up to be pretty easy to read. Here at Wamego Title, we give a separate sheet to the Buyer and a separate one to the Seller to protect your privacy. The fees are set out in a list as shown in the sample Seller’s Statement below:

As you can see, there are two columns showing the debits and credits with the subtotals at the bottom. The last line item is the actual proceeds amount that will be given to the Seller.

If you are purchasing a home and obtaining financing, you may get a loan that will be sold on the secondary market. If you are getting this type of financing, your Lender will give you a document called a Loan Estimate soon after you apply for the loan. Then, during the week before closing, you will receive two final settlement documents. One is called the Closing Disclosure and the other is called the ALTA Settlement Statement. The good news is that these documents will have very similar numbers; the bad news is there are a few more sheets to read through.

The Buyer’s Closing Disclosure is 5+ pages long. Here is a brief overview of what is on each page: 1. Basic details about the type of loan. 2. List of fees associated with the transaction. 3. Credits, subtotals and the grand total of funds you will need to bring to closing. 4 & 5. Further details about your loan and contact information for your Lender, Realtors, and your Title Company. The Seller’s Closing Disclosure is usually 2-3 pages long. Page 1 shows details of the transaction, subtotals and totals. Page 2 lists the fees the Seller has agreed to pay.

We prepare the ALTA Settlement Statements to go along with the Closing Disclosures. These documents are formatted differently from the simple Statements, but they still show a line-by-line breakdown of the closing fees.  Here is a sample of what part of one looks like:

As on the simple version, there is a separate line showing the amount “Due From Borrower”. This is the amount the Buyer will need to bring to closing.

The thing to remember is that you will want to review the documents as soon as possible after receiving them. Don’t wait until the closing to ask your Lender or us any questions that you may have. If you wait until closing to ask your questions it could possibly delay the closing. Please remember that we at Wamego Title are always happy to take the time to answer questions and explain information.

Understand the Deal

Buying a home is a major transaction in anybody’s life. You are committing to an obligation that can last thirty years.  The obligation usually absorbs a major portion of your income in making the mortgage payments, real estate taxes, insurance and maintenance.    As a homebuyer you are dealing with real estate agents, title companies and lawyers.

A homebuyer is surrounded by these real estate professionals rattling off terminology and using terms and acronyms that most of us are only vaguely familiar with.  They will talk in terms like “30-year loan with a three one arm.”  How many homebuyers know what that means?   The sales contracts are long and complicated by the attempt to cover every possibility for every transaction with one form agreement.

The mortgage loan documents required to obtain a home mortgage loan are voluminous.  This is because of federal government regulations which require numerous disclosures and warnings which to the bureaucratic mind will protect the consumer.  In their opinion a consumer is a gullible, ignorant victim being lead innocently to financial doom.

Having been a lawyer for forty years I believe all of these things; instead of protecting a homebuyer, work to intimidate that buyer.  As a young lawyer I would read a complicated document or listen to an argument or presentation and think to myself “What the hell are they talking about?”  That was followed by a dilemma.  Do I ask and expose my dreadful ignorance or keep quiet and hope everything is okay?

A mentor, lawyer, legal scholar and judge told me “Son, always ask until you understand the deal.  You will find out that as often as not the person pushing the language can’t tell you what it means.”  Question the people pushing your deal until you can repeat it in simple terms that you understand.  That is what I do.

Mail-Away Closings

Are you planning to travel out of state, or even out of the country, at some point during the Christmas season? Did you know that it is still possible to complete your real estate closing from a different state? Even from a different country?

If you are selling real estate, the deed and most of your closing documents can be emailed to you well in advance of the actual closing date. You can then print them and take them to the notary of your choice. For example, here at Wamego Title, we closed a transaction for a person who currently lives in Japan. This person was able to bring the deed to the American Consulate to have his signature notarized. Military personnel can also get access to a notary through their base legal office.

Once the documents have been properly executed, they should be shipped back to our office using a carrier service that provides tracking information. It is recommended that the deed and other originals be returned to the closing & escrow agent as soon as possible so they can be reviewed and approved well in advance of the closing. Settlement Statements with the final costs of the transaction can be signed electronically, or if you don’t have access to email, these can be faxed or even mailed if there is enough time before closing. Or, if you have hired a realtor, you can appoint them as your Power of Attorney to sign the documents for you.

If you are purchasing real estate and not obtaining financing, the closing process can be very simple. Funds can be wired directly to our escrow account, or delivered to us as a cashier’s check. Also, the few documents that usually must be signed can be done electronically.

If you are obtaining financing, you must let your Lender and your closing agent know well in advance where you will be on the closing date. As soon as we know where you will be, we can schedule an appointment for you with a notary at another title company. If you are not able to travel to a title office, in some cases we can find a mobile notary. This person will be able to meet you at a location and time that is more convenient for you. They will help you complete and sign the documents and return them to us. In the past, we closed a transaction for a person stationed on a military base in Hawaii in this way.

We know that the Christmas season can be a busy and stressful time. Let Wamego Title help reduce some of that pressure by coming up with a plan for your closing that works for you.

5 Highlights of Real Estate Contracts

The law of contracts (sometimes “agreements”) literally fills libraries and people devote their lives to learning and teaching its content. The issues can oftentimes be complex, confusing and daunting.  I cannot possibly begin to cover all nuances in a real estate contract.  However, I will provide a buyer and seller with five major points to consider in a contract to protect yourself.

  1. What is a real estate contract? A real estate contract is nothing more than an agreement about how the real estate will be sold by the Seller and purchased by the Buyer. It should contain all of the agreements between the parties. A typical consumer actually enters into a simple, unwritten contract each and every time a purchase is made no matter how small. However, we usually do not bring paperwork into donut purchases. Real estate on the other hand has significantly more value and can be far more complex. A written agreement allows for all of the details to be clear between the Seller and Buyer and in writing so as to prevent confusion and misunderstanding.
  2. Purchase price. Simply put: How much is the Buyer going to pay the Seller for the real estate to be purchased. Sounds simple enough but where will the money be delivered? Are the funds to be certified? (meaning the equivalent of cash?) Will there be an earnest money deposit? An earnest money deposit is a deposit towards the purchase of the real estate. It is most often made to the title insurance or closing company and paid towards the purchase at closing. However, if the Buyer fails to close for any reason that is not specifically allowed by the contract, the earnest money is forfeited to the Seller. Basically, it helps insure that the Buyer will carry through with the contract while at the same time giving the Seller some assurance that the Buyer is serious about the transaction.
  3. Closing date. When will the transaction take place? This is the day the Seller will deliver a deed and typically possession of the real estate and the day the Buyer will deliver money for the purchase. This date is often times about 30-45 days following the initial signing of the contract. The 30-45 day period allows the Buyer an opportunity to secure his financing. It also allows the title company an opportunity to prepare a title commitment and arrange a closing.
  4. Delivery of Deed and Possession. Just as it is stated; when will the deed be given to the Buyer and when will possession be granted?  Typically, the giving of the deed and possession happen on the date of closing.  Most Buyers prefer to have access to their home or real estate upon paying a significant amount of money.   That being said, unusual circumstances do arise and the parties to a contract oftentimes work out arrangements that protect both sides to an agreement.
  5. Proof of ownership. Most real estate contracts will contain how the Seller will prove to the Buyer that the Seller actually owns the real estate to be sold.  This is important because ownership of real estate is proven by several sources and methods.  Liens, easements, encumbrances, and ownership issues can impact the real estate to be purchased.  Most individuals are not equipped to determine whether these issues exist on real estate to be purchased.  Therefore, most contracts state that the Seller will deliver proof of ownership and the condition of the “title” prior to closing.  Most often this is through a “title insurance commitment.”  A commitment will show who owns the real estate and what liens, easements, encumbrances, etc. exist.  This document is usually prepared by a title insurance company on behalf of the Seller.  Additionally, the title insurance company will usually handle the closing of the transaction too.  This means that the title insurance company will collect a deed from the Seller and the money from the Buyer and pass them to each other.

As stated above, the process of entering into and fulfilling a contract can be complex and time consuming. I highly recommend that potential Buyers and Sellers employ a real estate professional such as a Realtor or attorney to assist in the process.

Mobile Closings – The Answer to Busy Schedules

While it is a good idea to attend your real estate closing in person to exchange the funds and the keys to the real estate, it is not absolutely necessary to come to our office in person for a closing appointment. Though our main office is located here in Wamego, we do have a second office in Alma, and for those who live or work in Manhattan, our closing agents are equipped to meet with clients at the location of their choice to witness a signing. We also offer a courier service to pick up or deliver documents back and forth. 

If you are the Seller, we can email all the documents to you and your realtor, if you have hired one, in advance of the closing date. You will have to arrange to sign the deed and some other documents in the presence of a notary, and, once the documents are signed, the originals should be delivered to our office either by hand, sent via a certified carrier that provides tracking information, or if you are in Manhattan, call us and our courier will be there soon. We will need the original deed and any other original notarized documents returned to our office prior to the closing date, but signed documents that do not require a notary’s signature may be returned to us electronically. We will also ask how the proceeds should be sent to you. You may schedule a convenient time to drop by our office to pick up the check or the funds can be shipped or wired to you. Please note that if the funds are to be shipped or wired to you, transit fees may be charged. 

If you are the Buyer and use a local bank in the area, you will oftentimes sign all the closing paperwork at their branch. After the loan closing has happened, either you or a bank representative will drop off the signed documents and funds at our office. If it would be helpful, our courier can also go to the closing location and pick them up. You will not need to schedule an appointment with us in this instance. If you are using a lender who is not in this area, they may hire us to close the loan. If this is the case, we will set up an appointment to meet with you at one of our offices, your realtor’s office, or the alternative location of your choice. Our closing agent will work with you and your lender to complete the loan paperwork and process the closing funds.  

Contact us to discuss the personalized closing services we can perform for you!

Using a Power of Attorney in Real Estate Transactions

In the current, fast-paced world, people often times find it difficult to be present at a closing. Perhaps a work or vacation schedule prevents a person from being present at a real estate transaction.  Military personnel are often times deployed overseas.  Often times folks are forced to relocate quickly and must sell their house from afar.  For these and many other reasons, a power of attorney may be the right tool for a closing.

Simply put, a power of attorney is a document that gives a person the authority to do certain acts on your behalf. This person is often referred to as the “power of attorney” or “agent.”  In a real estate transaction, this is commonly done with a “limited power of attorney.”  This allows the designated person the limited authority to sell or purchase real estate on behalf of a person.  The power of attorney document is signed by the person giving the authority prior to the real estate closing.  The designated individual provides the document to the title insurance or closing agent.  At the closing, the power of attorney simply signs for the absent person.

However, it is important to remember a couple of points to avoid delays or confusion at the closing:

  • Plan on having the power of attorney prepared well before closing. Often times the individual signing the document will be overseas. This will require finding a notary or equivalent at a consulate’s office. If in the United States, but simply unavailable, a notary will need to sign the initial power of attorney. Also, an original power of attorney will be needed for the closing.
  • Let your real estate agent, title insurance agent, closing agent or banker know as soon as possible that you are using a power of attorney to close. It is extremely important that these individuals know about the presence of the power of attorney in order to prepare the closing correctly. Failure to let these individuals know of that fact could delay closing.
  • If the power of attorney is being used to sell a principal residence or “homestead,” Kansas law dictates that specific language be added to the power of attorney. If the language is not present, the power of attorney may lack the proper authority to complete the closing.
  • Have a real estate professional assist you with the form. The power of attorney document and its requirements can often appear daunting and confusing. A real estate professional can assure that the document is completed correctly and prevent a delay in closing.
  • Decide who will be your power of attorney. Often times this is a stateside spouse, real estate agent or family member. It is important that this person be trustworthy. After all, the family home is most Americans’ largest investment. You do not want just anybody handling this transaction for you.

 

Wamego Title is also happy to assist in the preparation of the power of attorney to ease the closing process. Our office has seasoned real estate attorneys on staff that have prepared countless power of attorney documents for every type of real estate transaction.   Additionally, our attorneys are available to answer questions regarding the power of attorney.  With a little pre-planning, a seemingly daunting and confusing situation can be made easy.

What Happens at a Closing?

So, you are ready to sell your house: have a buyer lined up, contract signed, and are looking at a prospective closing date. Then you stop and think, “What’s next?”

If you have never purchased or sold a piece of real estate before, or a significant amount of time has passed since the last time you did, the whole closing process can seem a bit overwhelming. In the past, you could just shake hands on a deal and trust that the other party would work with you to get the deed filed, the money given to the right people, and help iron out any wrinkles that might come up later. However, times have changed, and you can’t implicitly trust that the other party will fulfill his part of the bargain or that either you or he will know exactly what needs to be done to complete the sale. What is needed is a disinterested third party to work with the Seller, Buyer, realtors, and the bank to help each party perform the tasks necessary to complete the transfer of ownership. At Wamego Title, it is our pleasure to work closely with each party to the transaction to ensure that each one knows exactly what is expected of them and when each step should be completed.

For Sellers, we draft the Deed, Settlement Statement, and any other documents needed to ensure that you are passing clear title to your Buyer. We send the documents to you well before the closing date to ensure that your questions can be answered before closing and leave plenty of time for you to meet with the notary of your choice to complete the necessary documents. If there is a mortgage on the property you are selling, we contact your mortgage holder to obtain the payoff amount and then send the payoff to them during the actual closing. A few days before closing, we will send you, and your realtor if you have hired one, the finalized Settlement Statements so you can review the costs of your transaction before you get to the closing table. At that time, our closing agents will discuss with you whether you prefer to schedule a closing appointment or if a mobile closing would work best for you. During the closing it is our responsibility to receive the secure funds from the Buyer and transfer the proceeds to you.

For Buyers, we work closely with you and your Lender, if you are obtaining financing, to ensure that you are prepared for your purchase. We create your Settlement Statements in collaboration with your Lender prior to closing, so you have time to review it and know exactly what amount of funding you will be required to bring to closing. You and your Lender will be able to decide where it would be convenient to sign your closing paperwork. If you are not using a Lender, we are able to work with you directly to decide what method of closing best fits your busy schedule.

For both Sellers and Buyers, after closing we ensure that all the documents are properly completed and recorded at the County Register of Deeds Office and send each party copies of the documents that should be kept for personal files. Our closing agents are always available to answer questions or address concerns no matter what stage of the transaction you are at!

Tax Consequences Resulting from the Sale of Your Principal Residence

It has often been said that there are two certainties in the world: death and taxes. However, with the sale of your principal residence, most of the time a seller can avoid paying tax on the proceeds received!  So, you have decided to sell your house and are concerned with paying income tax on the proceeds?  Are you about to attend your closing and this thought just popped into your head? Did you just deposit your proceeds check and now are scared the IRS will be coming for your bank account?

Simply put, the IRS requires individuals to pay capital gains tax on “gain” or money made in a transaction. This means that you will be taxed on the difference between what you paid for real estate and the sales price.  So, if you paid $100,000 for a house and sold it for $150,000 you have “gain” in the amount of $50,000.  Therefore, this $50,000 would be subject to tax.  However, the IRS has a law that states that if you sell your principal residence for a gain and you have had the house for at least two years, you can exclude up to $250,000 in gain from tax.  If you are married, the level is $500,000 in gain.  So, a couple selling their qualifying principal residence can take up to a half a million in profit without having to pay a single penny in tax!

With this advantageous tax rule, several people have attempted to use this rule for property that is not necessarily a principal residence. So, what is a principal residence?  Several tests are used to determine whether your house is a principal residence and subject to this tax free sale allowance.  Some of the factors used are: Where are you registered to vote?  Where do you receive your mail? What school district do your kids attend? What address is on your driver’s license? What address is on your state and federal income tax returns?  How often do you stay the night at the house?  The list is not inclusive but are definite factors looked at by the IRS.

Additionally, one must reside in the house as a principal residence for at least two years out of the previous five years in order to qualify for the exclusion. However, if the sale was because of a few reasons, you may still be able to qualify for at least a portion of the exclusion.  Some of the special exceptions include: work related move, health related move, divorce or unforeseeable events.  These exceptions each have their own rules that are too extensive to discuss here.  Therefore it is best to consult with your tax preparer or a qualified tax professional.

As you can see, this exclusion is a powerful tool for homeowners!

7 Pillars of Best Practices in the Title Insurance Industry

At Wamego Title, we utilize “Best Practices” to ensure the safety of our customers’ private information, and to safeguard funds and title to real estate. Best Practices are the established operational procedures in a specific industry that have become the proven way to run a successful business. Wamego Title complies with the American Land Title Association or ALTA Best Practices. The American Land Title Association is the national organization representing title companies from the entire United States. Our insurance underwriters review our company annually to ensure we remain compliant in our day-to-day operations. The seven areas or “pillars” overseen by these standards are: Licensing, Escrow Services, protecting Personal Information, the Settlement Process, Policy Production, Insurance Coverage, and Customer Care.

Being compliant with the ALTA Best Practices means that Wamego Title offers an extra layer of protection and care to our clients, as well as to realtors and lenders. One of the hot button issues in this digital age is the concern about protecting personal information. There are many new regulations that have been created to ensure that our clients’ Non-public Personal Information is safeguarded. We work hard to comply with these regulations, by using electronic programs such as DocuSign® and our Paperless Closer document portal, as well as encrypting and adding passwords to emailed documents. We utilize this level of security for all transactions, whether required or not. In addition, we follow safeguarding procedures, policies, and controls for our Settlement Process, the handling of our Escrow Account, and the production process of the Title Insurance Policies we issue. We obtain and maintain the proper licenses, as well as maintain liability, fidelity insurance, and errors and omissions insurance coverage for our business and employees. Furthermore, our title insurance agents participate regularly in training sessions to stay aware of current issues and new methods of providing service by implementing and utilizing new technology. The last of the Best Practices pillars is Customer Care. We strive to offer personalized service to each one of our clients, and follow our procedures to address any possible issues.

Place an order for title insurance or call us to schedule your closing to experience Wamego Title’s Best Practices Standards!