Types of Title Insurance

Question: Are there different types of title insurance?

Answer: There are two basic types of title insurance: Lender’s title insurance, also called a Loan Policy, and Owner’s title insurance. Most lenders require a Loan Policy when they issue you a loan. The Loan Policy is based on the dollar amount of your loan. It protects the lender’s interests in the property should a problem with the title arise. The policy amount decreases each year and eventually disappears as the loan is paid off.

Owner’s title insurance is usually issued in the amount of the real estate purchase amount. It is purchased for a one-time fee at closing and lasts as long as you have and interest in the property. This may even be after the insured has sold the property. Only Owner’s title insurance fully protects the buyers should a problem arise with the title that was not uncovered during the title search. Owner’s title insurance also pays for any legal fees involved in defending a claim to your title.

February 24, 2014

Real Estate Closing Documents

Real Estate Closing Document

If you are involved in land you should understand the basics of real estate closing documents. They may not be exciting, but they are the method used to transfer land and secure loans on real estate.

Conveyance Documents

Conveyance documents are those that transfer (or convey) ownership of land. The most common is the Warranty Deed but there are others such as Special Warranty Deeds, Quit Claim Deeds, Grant, Bargain and Sale Deeds.

Each is different in certain ways but each transfers real estate from sellers to buyers. If buying you always want a Warranty Deed, as it transfer the land to you with the greatest guarantees from the seller.

Loan Closing Documents

Loan documents are used to secure the loan. The most common are the Trust Deed and Trust Deed Note. These two go together and are used by lenders nationwide.

Older loan documents include Mortgages and Real Estate contracts. Both are now rarely used, and are not recommended.

HUD 1 Settlement Statement

In buying or selling land the HUD-1 Settlement statement is the most important. All transaction costs are included on this closing statement. Although it looks similar, this is not a balance sheet nor does the bottom figure show the cost of the transaction.

The bottom lines show the amount of cash to be brought in or paid by the buyers and sellers.

Most Important Documents

There are many closing documents involved in a real estate closing. Many of these documents are to gather or disclose information. While all the documents are important a few are the most important and should be reviewed carefully.

These are the HUD1 Settlement Statement, the Warranty Deed and the Trust Deed Note. You should review all figures on the the HUD-1 to assure you are not overcharged and all items are paid correctly.

The Warranty Deed is reviewed to assure that your names are spelled correctly and vesting is correct. If there is a loan involved in the transaction review the Trust Deed Note to insure the terms of the loan are correct. This would include loan amount, interest rate, payments, and payments dates.

Recording Of Documents

After closing, several documents are recorded to transfer ownership to the new owner and secure the interest of the lender. These are the Warranty Deed and the Trust Deed (or Deed of Trust).
The original deed is mailed to the new owner after the closing, although the most important step is the recording at the local County Recorder’s Office.

Review Documents At Closing

A mistake often seen at closing is the buyer or seller rushing through the documents, instead of reviewing them and asking questions. While many of the documents are routine and less important, those listed above is reviewed carefully and you should ask any questions necessary to fully understand them.

February 23, 2014

The HUD-1 Settlement Statement

The HUD 1 Settlement Statement was created by the Federal Department of Housing and Urban Development. It is the required closing statement on all real estate transactions which include a bank loan.
Although not required for other real estate transactions, most title companies use it for all transactions.

The form is a victim of congressional legislation, disclosure requirements and years of tweaking, making it unnecessarily complex. In spite of this it is the standard so needs to be understood. The form consists of 3 pages and we will explain each page separately.

I will refer to line numbers when explaining the HUD-1 Settlement Statement. The numbers range from 100 – 1400 and are on each line of pages 1 and 2 of the HUD1.

HUD 1 Page 1

Page 1 contains final figures, totals from page 2 and is divided into 7 sections. Lets look at each section separately.

General Information

This section contains the basic information about buyers, sellers and the property. It includes names, addresses, date of closing etc. A quick review to make sure all information is correct is all that is necessary.

Section 100: Gross Amount Due From Borrower

This section itemizes all charges to the borrower or buyer, except closing costs which are itemized on page 2 and the total entered on line 103 of this page

This section calculates the buyer’s total cost, including purchase price, closing costs and any adjustments for items prepaid by sellers. Prepaid items could include prepaid taxes, rent, assessments etc. Instead of paying these items to seller separately they are incorporated into the total here.

Section 200: Amounts Paid By/For Borrower

This section includes items already paid by buyer or paid for buyer. This would include deposits, earnest money, loan assumptions, or any other figures which reduce the amount paid by buyer at closing.
It also includes adjustments for items unpaid by seller. This includes the pro-ration of the seller’s portion of property taxes, rents deposits etc.

Section 300: Borrower Totals

This section includes 3 lines. The first line is the total from section 100 or Gross Amount Due from Borrower. The second line is the total from section 200 or Amounts Paid By or In Behalf of Borrower.
The third line is the total amount of cash buyer will pay at closing. This is calculated by taking the Gross Amount Due From Borrower section 100 less the amounts paid by or for borrower in section 200.

Section 400: Gross Amounts Due To Seller

This section is the Gross or total amount due to the seller. This includes the sales price and any adjustment for items paid by seller in advance such as prepaid property taxes.

Section 500: Reduction In Amount Due Seller

This section includes all items that reduce the amount to seller at closing. This includes loan payoffs, and loans being assumed. It includes not just costs but any items that reduce the amount to seller at closing. It also includes the closing costs total which are itemized on page 2.

Section 600: Seller Totals

This section includes 3 lines. The first line is the total from section 400 or Gross Amount Due to Seller. The second line is the total from section 500 or Reduction in amount due to Seller.
The third line is the total amount of cash seller will receive at closing. This is calculated by taking the Gross amount due seller section 400 less the costs and other reductions from section 500.

HUD 1 Page 2

Page 2 of the HUD 1 Closing Statement itemizes all closing costs. The buyer costs are in the left column and seller costs in the right column. Both columns are on the right side of the page with the descriptions to the left. These costs are divided into sections and numbered as follows:

700’s – Real Estate Broker Fees

800’s – Loan Fees

900’s – Prepaid Loan Fees

1000’s – Reserves Deposited With Lender

1100’s – Title Charges

1200’s – Government Recording and Transfer Fees

1300’s – Additional Or Any Fees That Don’t Fit In The Above Sections

These fees are totaled at the bottom of the page for both buyer and seller. Buyer’s total is carried over to line 103 of page 1 and seller’s total to line 502 of page 1. By carrying them to the first page they are included in the totals at the bottom page 1, which we already reviewed.

HUD 1 Page 3

Page 3 is a new page on the Settlement Statement. It does not include amounts that are carried over to other pages. Instead, it is for informational purposes. It is divided into 2 sections. The top section is the

Good Faith Estimate.

When you apply for a loan the lender will give a Good Faith Estimate of Fees. This page shows the estimated figures received when you applied for the loan and the actual fees at closing. Most fees cannot vary from the original estimate. Those that can are listed as such.

The second section spells out all the loan terms and should be reviewed carefully if you have a loan.

HUD 1 Review For Buyers

Buyers should review the settlement statement in the following order:

Review the Good Faith Estimate and Loan Terms on Page 3. These should agree with the information previously received from the lender. The Lender can not add fees that did not appear on the original estimate received at time of loan application.
Review page 2. Review the left column of figures and ignore the other as it is the sellers costs. Ask about any fees that you don’t understand or that seem excessive.
Review page 1. The total from page 2 will be carried over and appear on line 103 of page 1. Review just the left column. Section 100 itemizes your total costs and section 200 itemizes items already paid by or for you. Any Earnest Money already paid should appear on line 201 with any other money paid appearing below that. The totals at the bottom are the difference between the two sections, and the amount you will pay at closing.

HUD 1 Review For Sellers

Sellers can ignore page 3 as it only relates to buyers. You should review the settlement statement as follows:
Review page 2. Review the right column of figures only. The left column is the buyers column. Ask about any fees you don’t understand or that seem excessive.
Review page 1. Review just the right column. Section 400 lists all amounts due to the seller. Section 500 lists any reductions to the amount the seller will receive at closing. This includes any payoffs, unpaid taxes, earnest money received etc. The totals at the bottom are the difference between these two sections, and the amount the seller will receive at closing.

Summary

Many people’s eye glaze over the first time a HUD-1 Settlement Statement is explained to them. But after looking it over and asking questions it is easier to understand. Remember you only have to learn it once, as all real estate transactions use the same form.

NOTE

As of 2016 this form has been replaced for most types of real estate transactions.