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Articles for ‘Legal Considerations’

Title Insurance Explained

Wednesday, August 5th, 2009 by Sari Levy

What is Title?

The word “title,” can mean a number of things. In real estate, “title,”refers to one’s right to ownership, or any form of evidence of land ownership. Title is your rights to the land and improvements.

 What is Title Insurance ?

Title insurance is a protection mechanism that will protect you against any kind of damage caused by a defect in the title. Defect in a title?  What?  A title can be defective for a number of reasons such as forgery and impersonation.  Title insurance will protect against such defects as well as  the expenses incurred in defending the title (your right to ownership). Title insurance not only verifies ownership, it will also detect any possible “clouds” on your title. Clouds?  Unlike a defect,  a cloud implies that the title is not clear and these clouds could be in the form of IRS claims, liens, or other uncertainties of ownership.

Further, there are two different title insurance policies issued in every real estate sale. The first type is an owner’s policy, which will protect the new owner from any ensuing claims to the property. The second type is a lender’s policy, which will protect the lender against loss of an unpaid loan balance in the event of a claim.

Title insurance policies are important because they protect against possible non-recorded claims against your property and ensure free and clear ownership. As such, these policies benefit consumers in establishing safety and security in owning real estate.

To ensure the property is free to transfer title, the Title company will perform a search on the property using a “pin” or “permanent index number” which is each parcel of lands own unique ID number.  The title company will collect information about the property that is found in public records such as: the county recorder’s offices; property tax records; sometimes in county courthouses.  

Who Pays for Title Insurance?
Title can be paid in a number of ways, but the most common is for the buyer and the seller in a transaction to pay for  a policy. There are two types of policies: a lender’s policy and an owner’s policy. As far as the lender’s policy goes, it is usually paid for by the buyer of the real estate. The owner’s policy is paid for by the seller of the real estate.

When Is A Deal A Deal?

Monday, February 9th, 2009 by Gary Lucido

The buyer’s agent submits an offer to the seller’s agent. Perhaps the form they have filled out says at the top MULTI-BOARD RESIDENTIAL REAL ESTATE CONTRACT 4.0. It is signed by the buyer and is accompanied by a photocopy of the earnest money check. After some back and forth they agree upon a price, the contract is modified, and now the seller signs the contract late on a Friday night and the buyer’s agent goes away for the weekend. Early Saturday morning the seller receives a better offer and takes it. It’s totally legal and the seller has no obligation to the first buyer.

How is this possible? What went wrong? Well, I’d rather not help the competition to get it right so I’m not saying. However, if you want to know you can email me at glucido@lucidrealty.com.

Taking The Short Route – The Process

Wednesday, December 10th, 2008 by Gary Lucido

Suppose you read my earlier post on why you should consider a short sale. What needs to happen in order to pull it off? Here is a short overview of the process.

Get The Right People Involved

It definitely helps to have a realtor involved in this process because there is a lot of back and forth, coordination, and information transfers. It’s really helpful to have someone handle all that for you – especially if they’ve been through this process before. A realtor can also help convince the bank that the property value warrants a short sale.

You will want to consult with an attorney because they can be helpful at several steps in this process, starting with getting your lender’s attention. One way to get your lender to consider a short sale is to stop paying your mortgage. However, I hear that is no longer the only way to get their attention and I wouldn’t recommend doing this without first consulting with an attorney. Then you will want your attorney involved again later in the process when your lender presents you with different settlement options so that you can understand the implications of them. For instance, you can sign a 0% interest note for the deficiency or the bank can just forgive the debt. Each of these alternatives has specific implications for your credit history, your future liabilities, and your taxes. You will probably want your attorney negotiating the terms of your deal for you, though your realtor will negotiate the offer with the lender.

Because of the tax consequences you’re also going to want to involve your accountant. For instance, under certain circumstances, when a sale is completed, you may receive a 1099 C from the lender that documents how large the deficiency was. As debt forgiveness, this would normally be taxable except that there is the Mortgage Forgiveness Debt Relief Act of 2007 that provides for this phantom income to not be taxable if the debt forgiveness is related to your principal residence and the debt is forgiven during 2007 – 2009.

Contact The Lender

Once you believe your lender is ready to consider a short sale someone needs to contact the lender to start the process. This is something your Realtor can actually do for you. The first step is to figure out who to talk to and to document the process. In general, you want to be dealing with the Loss Mitigation department, not customer service. They can outline the steps and the required documentation.

Prepare The Documents

Before the lender will have any discussions with your realtor that are specific to your case they are going to want to have an authorization on file that explicitly gives your permission for the lender to talk to the realtor. After that, the lender will need a short sale package on file. Every lender has a different process but in general the following documents are required in the short sale package:

  • Copy of the listing agreement with any amendments
  • A hardship letter, written by you, explaining your circumstances that require a short sale. If there is any supporting documentation such as medical bills or termination letters, those should be included.
  • Financial information request form, which provides a summary of your income and expenses
  • Copy of pay stubs
  • Copy of income tax return
  • Copy of property tax bills

Pricing The Property

Once your lender is in receipt of your short sale package and they have been authorized to talk to your realtor your realtor should call your lender to discuss pricing and the lender’s process for responding to offers. This is where a realtor can really add some value by figuring out what the lender’s targets are and how flexible they are. In addition, by understanding the process your realtor can set the appropriate expectations with potential buyers and possibly even expedite the response. The last thing you need is a realtor who just lets fate take its course.

Next Time

In another post I’ll cover what happens after an offer is made. In the meantime, if you would like some additional perspective on the short sale, check out this Atlanta based realtor’s blog.

Who Reads Those Loan Docs Anyway?

Friday, October 3rd, 2008 by Thomas Besore

Article reprinted with the permission of Thomas Besore.

Please read this post, draw your own preliminary conclusions, and then follow the link to another article on this subject.  I promise you will not be disappointed.  See if your conclusions change after following the link at the end of the post.

There are two essential sets of documents in most real estate transactions.  First, of course, is the written contract itself.  This contract ranks among the most significant legal papers in a person’s life.  Next to a divorce settlement, the real estate contract is probably the most used legal document in most American’s lives.  As a matter of course, we like to recommend that clients retain legal counsel to negotiate sticking points like tax apportionment and also to generally understand the essential terms of the contract.  If the tax apportionment or other aspect of the contract is not right, significant financial damage can result.

The second essential set of documents in a real estate transaction has to do with the loan.  This includes the promissory note itself and the security interest – the mortgage.  Whose job is it to advise the client on the small print in the loan?  Is the real estate agent to handle this?  Most certainly not!  How about the mortgage broker?  Nope.  Not her job either.  The broker simply brings the lender and the client together, outlining the important figures of the loan.   Among the first recommendations of the broker ought to be that the client should retain counsel to help her understand the nature of the loan rights and obligations.

Anybody who tells you that the mortgage broker ought to counsel the client on the loan paperwork needs a lesson in licensing, ethics and the practice of law.  How can a broker, whose compensation depends on the closing of the loan, pretend to counsel the client on that very loan?   Last time I checked, most states laws say you need something called a law license to advise a client of these contractual matters.  Second, every competent attorney knows that you can represent either the lender or the borrower, but never both!  It’s the client’s independent attorney who ought to counsel the client about the small print, the elements of the promissory note and mortgage instrument.  I will argue that it is the failure of borrowers to secure adequate counsel on loans that is largely responsible for the current mortgage crisis gripping our country.

How many lawyers do you know who properly advise their clients on the loan documents?  Isn’t it true that the borrower’s first exposure to the promissory note and the mortgage instrument is during closing?  Aren’t most closings now accomplished by paralegals with the buyer’s attorney showing up at the end just to give the final okay?  When a lawyer charges a fire-sale rate for a real estate “closing”, what level of service are people expecting to occur?  How can we as professionals encourage our clients to engage the necessary experts (and compensate them appropriately) to assist in fully understanding these essential elements of the real estate transaction?  After developing your own conclusions, follow this link to another story on this very issue.  Then return here and leave a comment if you wish!

Here’s that link. I can’t wait to hear from you!

Thomas G. Besore
Attorney at Law
540 N. Lake Shore Drive #315
Chicago, Illinois  60611

(312) 265-6272 Telephone
(312) 276-8558 Facsimile

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