The Deed Search in a Real Estate Transaction

Do I Need A Deed Search?

A Deed search is a review of all recorded deeds on a specific parcel of land to determine the history, ownership and liens of that land. This search is conducted at the local county recorders office. When the search is completed you receive either a chain of title or a abstract of title.

A chain of title is a list of each recorded document that pertains to the property. An abstract is a copy of every document in the order they were recorded.

What Is A Deed?

Deeds are used to transfer or encumber real property. The most common are Warranty Deeds, Quit Claim Deeds and Trust Deeds. The Warranty Deed and Quit Claim Deed transfer ownership of real property, while the Trust Deed adds a loan to real property. There are many other deeds but most either transfer land or add a loan.

When Do You Need A Search

There are many instances when you may want a search. If you are buying property at a tax sale or without title insurance you need one. If you plan on subdividing or developing land it may be helpful also.

The search is conducted by the title company before they issue title insurance so when you buy land you receive a title policy instead.

Who Does Deed Searches

Searches are conducted by title companies or independent title searchers. I recommend you use a title company. Title company personnel are required to be licensed by the state and are trained by the title underwriter.

Mineral Search

The mineral search is a special type of search. It is only used in areas that have mineral exploration such as oil or natural gas. In these areas the mineral rights are often owned separately from the land.

When you own land but not the mineral rights it is helpful to know who owns them. Unlike surface rights the mineral right ownership may be divided in percentages and owned by dozens or hundreds of people. Because of this a mineral search can be expensive.

Summary

A search is helpful when you need to know the current condition of the land title and the history of ownership. The search can be conducted by a title company or independent title searcher.

If you are buying property insist on a title policy. The title company will conduct a search to issue the policy. You can request a copy of the chain of title at closing so you will have a history of ownership in addition to the title policy.

February 27, 2016

The Special Power of Attorney in Real Estate

The Special Power Of Attorney

The Special Power Of Attorney is only one of many types of powers of attorney. The most common is a health care power of attorney, which grants another the authority to make health care decisions when you cannot. Others include the General Power of Attorney and the Special Power of Attorney. We will focus on the special type.

Unlike a general power of attorney which empowers someone to act on your behalf in almost all legal matters, a special grants someone the right to act in one specific matter and usually for a specified period of time. A Power of Attorney is often referred to as a POA.

Use In Real Estate Transactions

This type is often used for land transactions. With this document you grant someone the power to act in your behalf on all matters dealing with a specific piece of land. This would included buying, selling, mortgaging, leasing etc.

When a person is unable to attend their closing they may grant a special powers of attorney to their spouse or other trusted person. Banks and title companies often require this type of POA and require it to describe the specific property.

Durable Clause

A durable clause can be added to any type of power of attorney. It means the power of attorney is still in effect if the grantor (person giving power of attorney to another) becomes incapacitated or mentally incompetent. This incapacity includes Dementia, Alzheimer’s or a coma.

You should be cautious and grant this only to someone you completely trust. You can revoke a power of attorney at any time, unless you are mentally incompetent. The power of attorney then stays in effect while you are judged incompetent, which could be until death.

Void Upon Death Of Grantor

Upon the death of the grantor all powers of attorney are automatically and immediately void. Many times I have seen individuals try to use a power of attorney granted by a person who is now deceased. They did not understand that it is now void.

Cautions

Be careful in choosing who you grant power of attorney. You must trust this person completely and know they will act in your best interest and according to your instructions. You are giving them a great deal of power to make decisions and act on your behalf. Most of these decisions cannot be changed.

Revocation

To revoke a power of attorney you send a signed statement to the holder stating it is revoked. You also request the original document be returned to you. You should also notify anyone who has a copy, or has conducted any business based on the power of attorney, of the revocation.

When creating a POA it usually states it revokes all previous ones. The special may not have this wording as it is for a specific purpose.

Limits

The use of powers of attorney in real estate transactions is limited. Many banks and title companies will not allow their use. Often title companies will require a power of attorney they prepare. They are hesitant to use a general power of attorney or any power of attorney that is old.

Because the POA is the most forged document they will want to know why you are using it, may want to prepare it themselves, and will want to talk to and maybe meet the individual granting the power of attorney.

They will also insist on a Special Power of Attorney that specifically describes the land for which it is granted.

The Special Power of Attorney grants broad powers and should not be used if it can be avoided.

February 25, 2016

The Land Survey and Utah Real Estate

Do I Need A Land Survey?

A Land Survey is not required on every real estate transaction, but is sometimes necessary and invaluable. A survey marks the lands outer boundaries and a plat map is prepared showing the land boundaries along with a legal description.

When Do I Need One

A survey should be performed anytime the boundaries of the land are not properly marked. This may not be necessary in the city, where each lot is marked by fences but in the rural areas the property lines are often unmarked. The surveyor will mark the property lines with stakes and flags to show these boundaries.

What Does The Survey Do For Me

Marking the property lines can protect you. Many land owners build cabins on their properties. At times they think they know their property lines. Maybe they reviewed a topographical map or were shown the supposed property lines by a neighboring property owner.

If you rely on this information you may build a cabin on the neighbors property. A building of any kind is owned by the individual whose property it is built on. Don’t build your neighbor a free cabin. You would be shocked how often this happens.

Surprisingly this is also common in cities. Garages and sheds are often built on the property line with parts of the structure being on the adjoining property.

Why Not Use My GPS

I am regularly asked by land owners: why can’t I use my GPS to find my property corners? There are many reasons why this is unwise. Below are a few:

1. Your GPS Is Not Accurate

While surveyors do use a GPS system to complete their survey it is much more accurate than your hand held GPS.

2. A Survey Is Based On Section Corners

Surveyors first find a section corner to start the survey. This is necessary as surveys are based on established section corners.

3. All Sections Are Irregular

West of the Mississippi river land is divided into sections which, in theory, are 1 square mile. These sections were established by government surveyors when the land was opened for settlement. At the time, surveyors tools were not as accurate as today. Because of this none of the sections are exactly 1 square mile.
To compensate the surveyor must prorate the measurements of each parcel in the section. The amount its over sized or under sized is pro-rated across all parcels based on established surveying principals.

4. Priority Affects Land Parcels

Because of the above difficulties it is common for property descriptions to overlap or leave gaps between them. These are resolved by the priority of the recorded deeds (the order they were recorded). Without a knowledge of how to search deeds at the county recorders office you will not be able to determine priority.

5. Difficult To Find GPS Coordinates

It is difficult to find the GPS coordinates for your lands corners. These coordinates are not used by title companies and are difficult to find. In fact the coordinates cannot be determined without a professional survey.

These and many other issues are taken into account by professional surveyors as they prepare the survey.

Summary

Although not necessary with every land transaction a land survey is very helpful. The surveyor will create survey plat which is a map of the property showing the measurements and property lines, and containing the legal description. They will also mark the property corners by placing wooden stakes in the ground.

A personal GPS is not adequate to find your property boundaries and corners.

February 25, 2016

Reading a Real Estate Contract

Reading A Real Estate Contract

A Real Estate Contract, Real Estate Purchase Contract or REPC is the contract to buy land or other types of real estate. These contracts are created by the state real estate department and used by real estate agents. Individuals use the same or similar contracts.

The contracts vary from state to state but are similar. The main sections are listed and explained below. The first section lists the names of the buyers, sellers and realtors. The Real Estate Contract is about as boring as it gets, but necessary to understand when buying land.

Property

The property section describes the property included in the sale. This includes the real estate, any appliances included with a house and any water rights, mineral rights etc. Any items not included in the sale are also listed.

Purchase Price

The price section includes the purchase price and any financing. The financing might include bank loans, private loans or owner financing.

This section may also state the contract is subject to loan approval. The buyer will not be required to complete the purchase if their loan is denied. There also may be a appraisal condition which allows the buyer to cancel the contract if the property appraisal is lower than the purchase price.

Settlement and Closing

The settlement section covers items that must be completed before the closing. This includes documents to be signed, money to be paid, and required disclosures.

Possession

This section gives the date when the buyer can take possession of the property. This is usually a certain period of time after the closing occurs.

Agency Disclosure

Its very important to review this section. The realtor(s) disclose who they represent which is either the buyer or the seller. Keep this in mind when dealing with a realtor.

Title Insurance

Every buyer should demand title insurance when they purchase real estate. This section details the title insurance policy requirements and who pays for it.

Seller Disclosures

Seller disclosures often include the following:

Property condition disclosure
Commitment for Title Insurance
Any leases not expiring before closing
Any environmental liens or issues
Any building or zoning code violations
Other issues seller is aware of that affect the property

Buyer’s Right To Cancel

Conditions allowing the buyer can cancel the contract may include:

Buyers approval of seller disclosures
Buyers inspection of the property
Buyers approval of a land survey
Buyers ability to get home owners insurance
Other test and evaluations as listed

Seller Warranties

The Seller guarantees the property will be in good condition with a clear title and be broom clean. This includes all appliances work, there are no roof leaks, foundation cracks, or other problems not disclosed to the buyer.

It also discloses if the seller will provide a home warranty and what coverage will be included in the warranty.

Walk-Through Inspection

The Buyer is entitled to inspect the property before the closing. The Seller agrees to correct any problems found during that inspection within the limits described in this section, and to allow buyer to enter the property for the inspection.

Changes During Transaction

Seller agrees none of the following will occur without buyers consent:

No changes to existing leases
No new leases shall be entered into
No substantial improvements or alterations made to property
No loans or other encumbrances placed on property

Complete Contract

Buyers and Sellers agree that this contract and the attachments and addendum’s is the complete contract. This precludes any claims of verbal agreements or other buyer said/seller said issues.

Dispute Resolution

This details how any disputes will be resolved. Often the parties agree to a mediation instead of court.

Default

Both buyer and seller may default (not complete) this contract. This explains the remedies in a default, which may include retaining the earnest money or filing a lawsuit to force contract completion.

Contract Deadlines

There may be separate completion deadlines for parts of the transaction or contract. These could include:

Buyer Loan Application deadline
Seller Disclosure deadline
Property Inspection deadline
Loan Denial deadline
Appraisal deadline
Settlement deadline

Not meeting any of these deadlines by the responsible party (buyer or seller) allows the other to cancel the contract.

Offer And Time For Acceptance

Either the buyer or seller could make the original offer to the other, although the buyer more commonly makes the offer. This states how long the other has to accept, reject, or make a counter offer.

Nothing is more boring than a Real Estate Contract. I know because I read them all the time. However, if you are buying or selling real estate you better read it and understand it. There is too much money at stake to sign this contract without fully understanding it. You may also want to have your attorney review the real estate contract before you sign.

February 17, 2016

The Real Estate Closing Process

The Escrow Closing or Real Estate Closing Process is not as complicated as it seems, with a little help anyone can understand and feel comfortable with the process.

The escrow closing process follows certain steps in a certain order, once you understand these steps, the process becomes clear. Several of the steps are part of every closing; others are optional depending on the circumstances.

Real Estate Contract

The Real Estate Closing process begins when you make an offer by signing a purchase contract, and the offer is accepted by the seller. When this step is completed several people get involved in your closing.
The Title Company begins to research the title of the property. An appraiser and surveyor may also start working on your closing. These happen in the background, all preparing for the signing or closing.

Title Commitment Review

After signing the Purchase Contract, the title company will prepare a Title Commitment. The Title Commitment shows any liens, judgments and other problem with the real estate title or ownership.

It is also a commitment to insure the property in your name at closing, subject to any terms contained in the Title Commitment. Review it carefully and call the title company with any questions.

Disclosures Review

Before closing, the seller is required to make disclosures to the buyer. These disclosures vary from state to state but include any leases that may be on the property as well as other things the seller is aware of.

If there are building on the property the disclosures should also include any problems or required repairs on the buildings.

If the disclosures show significant problems you have a certain amount of time to cancel the deal. The exact amount of time you have to cancel is spelled out in the purchase contract.

Appraisal

An appraisal is performed by a licensed appraiser, who uses recent land sales, to estimate the market value of your land.

If you requested an appraisal on the property, you should receive it before signing. If you do order an appraisal, the purchase contract should be conditioned on the property appraising for at least the purchase price. The appraisal is optional.

Land Survey

A Survey is often part of the real estate closing. The Purpose of a real estate survey is to mark the property boundaries, and map them in relation to the surrounding properties.

If there isn’t an existing survey on the property, and the boundaries are not marked, you need a survey.
Surveys are often required when you build a house on the property. If you plan on building in the future, this is good time to get a survey as the seller may pay all or part of the cost.

Property Inspection

The inspection is your last chance to look at the land again before you buy. This is usually scheduled just before signing.

Depending on what you are buying this could be very important. If you are buying land only, it may be less important, but if you are buying land with buildings, equipment, etc., this is the time to make sure everything is in working condition.

Real Estate Escrow Signing

Finally, it’s time to show up at the designated place to sign the Real Estate closing documents. This is sometimes referred to as the Escrow closing, although the entire process is part of the escrow closing. The previous steps may happen without your knowledge, and explains why it takes so long.

You will need to bring the required money to close. The amount should be certified funds (cashier’s check, wire, etc.).

This is the time to review all the papers and have any questions answered. This is your last chance to have any concerns addressed by the seller or realtor. Once you sign the papers the land and any problems are yours.

Document Recording

After signing, and after the money has been cleared, the title company will record the deed, transferring the property into your name.

If you borrowed money to purchase, the mortgage documents will also be recorded. After the recording is completed, you become the official owner.

Possession

Date of possession will be sometime after Recording. It is usually an agreed number of days after the recording, as agreed in the purchase contract.

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.