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Category: Real Estate

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!

Real Estate Tax Proration in Real Estate Closings

A common question that arises during the closing process is how a real estate tax proration works in Kansas. Every county in Kansas, including Pottawatomie, Wabaunsee and Riley Counties, has a tax levied against real estate.  It is based upon the value of the property owned by an individual.  There are also different tax rates for residential, commercial and agricultural real estate.  Taxes are due for each year a person owns real estate and are charged against the owner of the real estate at the time the tax becomes due.  In Kansas, real estate taxes are not due until the month of December of the year of the accrued tax.  Additionally, the actual amount of tax is also not known until shortly before the tax is owed. So, basically, that year’s taxes are always paid at the end of the year in December.  To add further confusion, an owner of real estate may pay all the tax owed for that year in December or can pay one-half of the tax in December and pay the second half in May of the next year.

So, if you close a real estate transaction on any day besides January 1, the Seller will have occupied the real estate for a portion of the tax year and the Buyer will occupy for a portion of the tax year.  Therefore, to be fair, the Seller pays for the portion of the taxes that accrued while he occupied the real estate and the Buyer for his portion.  However, the actual tax amount is not known until around December, right?  If a transaction closes in July, how do we charge each side its amount?  As real estate taxes are based on value and value typically does not fluctuate wildly year to year, we estimate the amount of the taxes for that year based upon the previous year’s real estate taxes owed.  If your closing takes place when taxes are known, we will use the actual real estate tax figures from the county for that year.

Lastly, real estate taxes for that year cannot be paid until they come due in December.  Therefore, the Seller pays the Buyer the Seller’s portion of the taxes at the closing table.  The Buyer is then responsible for all of the taxes when they come due.  To simplify the process even further, we usually just show this as a credit at the closing table.  Meaning, we reduce the purchase price to be paid to the Seller by the Buyer by the amount of the real estate taxes that are the responsibility of the Seller.

Real estate taxes in Kansas can be quite confusing.  Therefore, if you have additional questions about real estate taxes in your closing, simply call our office for further assistance.  That’s why we are here!

What is TRID?

As someone who has been interested in buying or selling property you may have heard talk lately about new “TILA/RESPA” or “TRID” rules. So what do these acronyms mean and why are they being talked about by lenders, settlement agents, and realtors, to name a few? Will these rules affect me if I am trying to buy or sell real estate?

TILA and RESPA stand for two different government acts that directed two forms that were provided by lenders to buyers/borrowers during a real estate closing. One act was known as the Truth in Lending Act and the other was the Real Estate Settlement Procedures Act of 1974. There was concern that these two forms were difficult to understand, so in 2010 President Obama signed the Dodd-Frank Act into law. This new law required that the information from the two forms be combined into a standardized Loan Estimate Form and Closing Disclosure Form. Thus, the name TRID came to be: TILA/RESPA Integrated Disclosure.

Lenders are now required to provide a Loan Estimate to any buyer/borrower who is seeking financing for a standard residential home purchase. The fee and term names are used on a similar Closing Disclosure form (instead of the old HUD or Settlement Statements) during closing, so the buyer/borrower should understand more easily the costs of the entire transaction. The Closing Disclosure form also has to be delivered to the buyer/borrower three business days prior to closing so they have a chance to review it and ask questions before they reach the closing table. Prior to closing, the settlement agent will also provide a Settlement Statement that will be signed during closing.

As a Seller, the new rules can affect you as well. For instance, it might take a bit more time than before in order for the bank to gain the proper approval for the loan and be ready to close it. The Seller also is provided a shorter, more compact Closing Disclosure form. Though the three-day delivery rule does not apply for seller’s documents, settlement agents will try to deliver the Closing Disclosure and Settlement Statement a few days before closing so there is time for you to review them.

In conclusion, as either party in a real estate transaction, these new rules will affect you, but if you bring your questions or concerns to Lenders, settlement agents, and realtors, they will work together to provide you with the answers and assistance you need through the entire process.