In the final part of our series, we explore some of the remaining routine scenarios agents will face when closing real estate transactions.
Introduction
In the first two editions of this series, we tackled several scenarios faced by agents during the real estate closing process. These issues run the gamut, illustrating how potential problems can arise even when the finish line for a transaction is in sight. In the final edition of this series, we will address the remaining issues that agents will likely deal with throughout their careers, including existing surveys, T-47 affidavits (in Texas) and lender-required conveyances.
Existing Surveys and T-47 Affidavits
During closings, agents may need to review an existing survey and determine if it is acceptable. In Texas, per paragraph 6.C of the TREC contract, the seller is required to provide both a survey and a fully executed T-47 affidavit, and if they fail to do so, the buyer can obtain a new survey at the seller’s expense. The T-47 affidavit must have all blanks filled in and be fully executed and notarized. If it is not filled in, it can cause problems. For example, what if the seller fills in the date with the purchase date and not the date of the survey? How would agents know that no changes were made before purchasing? A new survey may be required in this case.
Lender-Required Conveyances and Removal of a Spouse from a Contract
Sometimes lenders may require the removal of a spouse from a contract if they cannot qualify as a borrower. The spouse who agrees to this removal amendment must do so in writing. If the spouse does not join in the amendment, they may not realize their omission from the deed until later. It comes down to classification. “Non-purchasing” means they are not on the contract so they should not be on the deed. “Non-borrowing” implies they did not qualify on the note but should join in on the deed of trust to encumber both of their interests in the property.
During refinances, home equity and reverse mortgages, lenders may also require deeds moving between spouses. Customers need to know that this is not a title company requirement and they need to sign an acknowledgment. Instead, it is a lender requirement. If this difference is not discussed, it can cause issues, especially if it was a separate property and they end up getting divorced.
Closing the Gap
Lastly, agents need to address the “gap,” the difference between the date of title search (Issued Day on a Commitment) and the date records are certified as complete (Effective Date on a Commitment). A best practice is to request the title be “brought to date” when closing is scheduled and for the gap to be brought to 10 calendar days or less. After the initial commitment is issued, time passes and the gap between the Effective Date on a Commitment and the current date continues to grow.
When preparing new title work, the agent needs to review it and issue a new commitment with additional exceptions and requirements to both parties before closing. Agents should not hesitate to stop a closing if new matters come to light. Neither agents or underwriters should assume the risk for closing or insuring in the face of an unresolved issue.
After the transaction closes, the gap will continue to grow until the closing documents – including the deed for the owner’s policy and the deed of trust for the loan policy – are recorded, which ideally occurs the same day as funding. This is the gap insurers find most concerning. In a state like Texas, for instance, claims relating to documents recorded during this particular gap are covered by the title policies for which premiums were collected at closing.
At most, the recording should not take longer than 48 hours following funding, even if that means overnighting the documents to the recorder’s office. Agents should get confirmation on the recording of their documents and retain evidence.
Conclusion
As this blog series has shown, getting a transaction fully and successfully closed has become increasingly difficult. There is no shortage of complex issues. But by being meticulous and methodical in how they execute their responsibilities, agents can successfully rise to the challenge and ensure customer satisfaction.
In part two of a three-part series, we continue examining common scenarios agents face when closing real estate transactions.
Introduction
Previously, we introduced the first of a three-part blog series on the issues agents routinely face during the closing process. The initial entry covered a wide range of issues – from summarizing agents’ fiduciary responsibilities to best practices when dealing with spousal transactions. The second part will continue examining common closing scenarios, including issues related to funding, family transactions and dealing with property and homeowner associations.
Escrow and Funding Issues
When funding a transaction, numerous issues need to be addressed. For instance, clients may want to use foreign currency. These are not “good funds,” and agents should not provide a receipt of funds until they have been sent through their escrow bank’s collection process and credited to its account. What if a party wants the agent to wire funds to a foreign bank? An agent should discuss the matter with management, but typically such a transaction is not recommended.
What about domestic transactions? Automatic Clearing House (ACH) is an electronic network for U.S. financial institutions to process common credits and debits. The ACH is not appropriate for escrow transactions as it lacks the necessary safeguards and reporting mechanisms to meet audit guidelines. Instead, all deposited funds must pass through the agent’s hands via check or authorized wire, or they risk potential scrutiny from state regulators.
Once funded, sale proceeds need to be made payable to the seller in the closing documents. Lender instructions typically include a statement indicating that you are closing and that funding has been carried out following agreed-upon terms. Agents run the risk of violating their duties to the lender if they distribute proceeds to anyone aside from the seller. If the seller is an LLC, proceeds should go to the LLC through a bank. And the LLC may need to set up a bank account if one does not already exist. The same goes for an estate.
Finally, agents may need to address splitting commissions. In Texas for instance, if a broker asks to split the commissions between broker and agent, the agent must have a Commission Disbursement Authorization form, and this form must be disclosed on closing statements or the form T-64.
Family Transactions
Family transactions have their own unique complexities. One potential problem is a pretended sale of homestead property, usually based on the assertion of an invalid lien. Frequently triggered by foreclosure or bankruptcy, an assertion is often made that the property is owned by a family member who conveyed the property and not the borrower – invalidating the lien.
A family member sale can qualify as a bona fide sale; however, in a state like Texas, if property is claimable as a homestead, it can be rendered void if the conveyor continues to occupy or intends to use the property for homestead purposes. To be insured, the agent must determine that the property is not the homestead of the selling family member. Of course, it is different if it is a cash sale. There is less concern here and underwriting approval is not needed.
Property Owners’ Association (POA) and Homeowners’ Association (HOA)
Lastly, agents must be attentive when dealing with owner associations such as property owners’ associations (POA) and homeowners’ associations (HOA). Property codes require a POA to provide subdivision information. There can be multiple associations for one subdivision, and fees may have to be charged to get information from all of them. It is a best practice to obtain POA or HOA information on all transactions. Association dues are typically subordinate to purchase money and construction liens; and home equity loans (HELs) may also be subordinate to association dues. Agents must verify this by reviewing the Conditions, Covenants, and Restrictions (CCRs), and may need to obtain a subordination agreement.
When dealing with select lenders, agents may need to get a 60 or 90 letter from the HOA. In Texas, if the dues are not subordinated, the agent cannot provide all the coverage in the T-17 or T-19 endorsements. Agents should also check for violations, and if they exist, collaborate with underwriting if providing T-19 or T-19.1. If an HOA exists but has not been formed, an affidavit may need to be signed indicating its inactivity.
Conclusion
There are many different types of real estate transactions, and title agents need to be well-versed on how the details of a transaction can ultimately affect the closing process. By having a strong foundational understanding, agents can operate more effectively, upholding their fiduciary duties and safeguard their clients’ interests. In the third and final edition of this blog series, we will cover any remaining closing scenarios that agents will likely face throughout their career, including lender-required conveyances, Texas T-47 affidavits and more.
Agents should prepare themselves to handle these routine scenarios.
Real estate closings require a delicate balancing act. Not only is speed of the essence, but closings also require accuracy and professionalism. Often there is no time to correct errors, and customers need to feel confident that their transactions are being carried out correctly.
Many issues can arise during the closing process. The following is the first of a three-part series that will explore some of the most common scenarios agents need to keep in mind.
Fiduciary Responsibilities
As escrow officers, title agents have fiduciary responsibilities and must act as neutral third parties, impartial arbitrators of contractual arrangements with conditions agreed to by both the buyer and seller. Escrow officers do not make decisions regarding a transaction and do not advocate for any one party. Instead, they ensure that written instructions are carried out properly.
Authority Issues
Within this purview, there are a variety of common issues that may arise during closings. Issues can and do vary state-to-state. In Texas, for example, one such issue is determining who has authority to act for an entity, with a pertinent example being an LLC. When dealing with this type of entity, agents will need to review operating agreements. In the absence of an agreement, a certificate of authority can be examined. These certificates are helpful when dealing with sole manager and member LLCs.
For corporations, agents should examine bylaws and subsequent amendments, and shareholders may be required to sign an affidavit. Nonprofits and churches conduct business differently. But in each context, the agent only needs to be concerned about authority when money is being borrowed or the entity is the seller.
Another authority question is power of attorney (POA). This is also mandated by state law. In Texas, agents must accept, reject or request a certification when presented with one. In reviewing a statutory durable power of attorney (DPOA), agents need to analyze if the powers have been limited, if it is durable and review the revocation clause. It is advisable to rely on a DPOA until there is a notice of revocation. As a best practice, certification for statutory DPOA should be required. The agent should also call the principal to verify if they are alive, that the POA has not been revoked and that a POA is being used to sell property. With trusts, it is prudent to maintain a full copy, and in its absence, obtain the certification of the trustee.
Information Security
Given the sheer volume of paperwork in real estate closings, data security is important. When possible, personal customer information should be heavily redacted. And all company policies should also be adhered to when processing this information.
Spouses and Marital Status
First, each state has its own spousal and/or marital law that dictates how agents must address issues. Be sure to familiarize yourself with the laws of your state.
In Texas – again, as one example – agents must be prepared to address transactions where only one spouse is listed in the title. Anyone with an interest in the property should be checked for involuntary liens and sign the deed. The marital status of the parties should be questioned if only one party is given as the seller, buyer or borrower.
With a married couple, both spouses must sign a deed of trust. If an agent is insuring a purchase money lien and one spouse is taking the title, an agent may accept a deed of trust signed only by the purchaser. The warranty deed is also required to include the vendor’s lien language. If the property belongs to one spouse while the other spouse lives in another property, one signature can be accepted and a Homestead Designation and Disclaimer will be executed.
In a sales transaction, agents should investigate the possible homestead character of the property, inquiring if there is an exemption and if the property address is the mailing address of the individual(s). The residency of the individuals should also be established. Sometimes a deed will be accepted signed solely by the spouse in the title, especially if permission is received by underwriting beforehand. It is necessary, though, to discern that the property to be insured is the separate property of one spouse and not the other spouse’s home, and a Homestead Designation and Disclaimer will need to be executed.
When dealing with spouses, it is always important to compare the sellers and buyers on the contract with the grantors and grantees on the deed – and to resolve differences. Some examples are:
The contract shows the buyer to be Joe Smith, but the grantees on the deed are Joe and Mary Smith.
The title is vested in and signed by Fred Farmer. The deed of trust is signed by “Fred Farmer and Susan Farmer pro forma to perfect the lien as to her homestead interest only.”
The title is vested in Harry Jones, but the note and deed of trust are signed by “Harry Jones and Cindy Jones.”
In the first example, the contract should be amended to add Mary Smith if she plans to take title. The case of Fred and Susan Farmer would be acceptable if there is evidence on file that the property is Fred’s separate property – either acquired before his marriage to Susan or inherited. Lastly, there is not much to worry about regarding Harry and Cindy, as this is a preferable way to handle the situation.
Conclusion
Numerous issues can pop up during closings, from entity authority to navigating transactions involving spouses. Agents can do a lot to circumvent any thorny problems. It starts with understanding the most common scenarios that arise during the closing process and then being prepared to take prompt and deliberate action. The next part of this series will continue to explore various challenges agents may face during closings, covering items such as funding and family transactions.
You can’t go wrong being educated, prepared, and mindful.
When writing about quality commitments we have two main goals: quality and excellence. Basically, we want to be sure we are producing superior commitments and policies.
But who decides whether or not we’ve attained these goals? The first answer is our underwriters. They’ll be looking to ensure that the quality commitment is written in a clear and unambiguous fashion so that all parties involved can easily see what’s covered by the policy and what isn’t.
Next up are the regulators. In my state of Texas, everything surrounding title insurance is regulated by the state, and the Texas Department of Insurance (TDI) routinely runs quality checks during audits.
However, our customers are the ultimate and most important judge of any of our business dealings, and it is up to us to ensure that the commitment for title insurance makes them feel reassured and enlightened rather than frustrated and confused. Buyers and lenders are looking for exceptions in a language that’s easy to understand, while owners want the language for requirements to be the clearest.
Let’s break down a commitment for title insurance. This step in the process comes after the receipt of a bona fide order and must be completed as soon as possible. The exception is when the company is unwilling to insure said order. In the event that the commitment is issued, liability and obligations end ninety days after the commitment’s start date.
When selecting the words to include in a commitment, it’s important to understand the distinction between language describing the insured land and language described as an exception from coverage. When describing an easement estate on Schedule A, we want the description to be as detailed as possible, because that limits liability. When describing an easement on Schedule B, we want to be as general as possible, because we limit our liability.
Requirements appear on Schedule C of commitments – and do not appear on policies. “Requirements” in this case reference items that must be resolved to the satisfaction of the underwriter before the policy can be issued. There may be instances when it’s necessary to tell a proposed insured something about the policy that will be issued. While there’s no standard way to give this type of information, the best practice would be to add a “note” – containing information. Remember, these “notes” are only used to include additional information about policies and never to provide information about the status of the title.
There are things that don’t belong on commitments. Some examples would be “affirmative” statements about what was found during the title search, instructions about how closing or escrow should be handled, information about transactions or policies outside of the outlined requirements, or details advising the insured about “rights of parties in possession” or amendments of the “area and boundary exception.”
With all of this information in mind, the question still remains: How do we achieve quality commitments and policies? The first step is education. Everyone in the organization must have appropriate training in the use of the escrow/closing and title production system(s). It’s critically important for each person to understand how the data they input is utilized by each process. The next step is the natural progression into preparation. Prep for quality starts with the setup process of the escrow/closing and the title production system.
At the end of the day, it’s about remaining mindful of the parties who will be reading your report or commitment and what it is they mean to do with it. If you go into the commitment process with that in mind and remain armed with the information you’ve gathered, you’re headed in the right direction.
Be educated in the process, be prepared for what you’re about to do, and be mindful of our clients and you can’t go wrong. If you would like to learn more about writing quality commitments, log onto our Alliant National Agent Resource Center and check out our Resource Center tab to view our new webinar on the topic.
This blog contains general information only, not intended to be relied upon as, nor a substitute for, specific professional advice. We accept no responsibility for loss occasioned to any purpose acting on or refraining from action as a result of any material on this blog.
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