Posts Tagged ‘home buying’

Confused young woman in a red striped sweater with cash on a yellow background.

Cash Offers: Title Implications and Questions

In a hot housing market, many buyers have turned to cash offers to get a leg up on the competition. Cash offers are often much more attractive to a seller, and it is not difficult to understand why. Cash can provide a pathway to a faster closing process. It frequently gives sellers more confidence. These offers even waive the requirement of having to conduct an appraisal.

Cash offers can also generate a bit of a confusion. For instance, how does eschewing a lender affect other parts of the closing process like a title search and insurance? Does it eliminate the need for insurance? If not, how and when should a cash buyer pursue title work? In this blog post, we will examine these questions.


Is Title Insurance Necessary for Cash Buyers?

          Title insurance is critical for a buyer to have regardless of whether there is a mortgage. Without a title search and resultant policy, no one is looking into who owns the property and what its issue may be. When a buyer obtains a mortgage, a title search is routine. But the contract and the obligation exist only between a lender and the title company – the buyer has no direct protection. If a defect exists, the title company is not duty-bound to fix it; instead, the buyer/owner could be liable for a lien or another defect.

          For example, consider a scenario where a home seller has a first mortgage for $100,000. A new buyer has obtained a loan for $125,000, and the property is worth $200,000 (in other words the buyer has invested $75,000 of their money). Meanwhile, there is a second valid but unknown mortgage of $50,000 against the property.

The lender uses this to assert their right to foreclosure and to take the property away. In such a scenario, the title company is required to defend the lender and protect their lien. The same can not be said for their relationship with the buyer. Instead, the buyer/owner must pay the unknown mortgage because they gave warranties of title to their lender.

Failing to do so could trigger a default. The lender, however, will not suffer losses. Under their title policy, there is enough equity to pay the newly discovered $50,000 mortgage and the lender’s debt. Without an insurance policy, the purchaser of the property could lose the title and, ultimately, their equity. They would be forced to pay the $50,000 to maintain ownership.

In each case, the seller is likely liable to the buyer for the $50,000, but when title insurance comes into play, the insurer will not only pay the loss but sue or pursue the seller for recoupment. But when there is no title insurance to speak off, all the costs fall on the buyer if they decide to sue the seller – who may not be able to pay even if the suit is successful. The same situation can develop in the case of a scam. If the seller is a bad actor and does not own the property, a buyer can wind up with nothing if no record search is conducted.  

What should be clear from that example is that, for just a nominal cost, title insurance can offer an easy remedy if there is something wrong. More importantly, it allows the buyer to know of any issues before investing money in the property. Title insurance also does not impede the advantages inherent in making a cash offer. As noted, one clear advantage of a cash offer is that it can speed up the closing process. Conducting a thorough title search does not disrupt this accelerated timeline. Typically, title work can be completed in 2-4 days and, depending on what is found, a commitment can be issued shortly afterward.

How and When Should Cash Buyers Procure Title Insurance?

When considering title insurance, an interesting question emerges regarding who gets to select the title insurance provider: broker, buyer or seller? To some extent, who does the referral and who pays for it is a matter of local practice. Typically, the party that pays makes the choice, but not always.

If possible, purchasers should maintain control over the issuer of the insurance. The buyer should want to know everything they can about the title’s status. Additionally, if the insurance provider is selected by the seller, there is the possibility that they may try to show that the title has few to no problems.

When searching for an agency, a buyer or realtor should vet the agency issuing the title commitment and verify that they are in good standing by obtaining that verification from the insurer. There is a universal ID that the American Land Title Association (ALTA) maintains and will verify an agency’s legitimacy. The insurer can also be contacted directly to verify their legitimacy. Phone numbers for the insurer are typically on the commitments or an online verification may be available at the insurer’s website. 

During a cash transaction, it is important to obtain a commitment to issue a policy from a reputable title agency or insurer as soon as possible. Receipt should provide an opportunity under the contract for purchase and sale to review and make objections – although there is usually a time limit. However, obtaining it right before closing does not allow time to object to an unacceptable defect.  

To Buy or Not to Buy Title Insurance

                It is not a requirement under the law that a cash buyer procures title insurance, so they can choose not to obtain it. However, there is no circumstance where skipping title insurance would be a good idea. Plus, with it being a relatively minor investment in the most expensive of jurisdictions, having the security that a thorough title review provides is more than worth the cost. You simply cannot put a price on peace of mind, and having a valid title policy is a great way to protect your all-cash investment.

hand on head emoji

Self-fulfilling prophecy?

One expert says fear of a recession could lead to one.

Increasing anxieties over a recession could be the cause of the next recession, according to Analyticom President Dan Geller, developer of the theory of money anxiety.

Geller’s theory explains that an increase in money anxiety can lower consumer confidence and cause a recession by reducing consumer consumption by just 5%. Since consumer consumption makes up about 70% of gross domestic product, a 5% reduction in spending equals 3.5% of GDP, which is greater than the projected GDP for 2019.

In July 2019, the Money Anxiety Index was flat at 44, the same as June, but slightly higher than May’s 42.7 points. While these figures are relatively low and don’t point to an immediate recession, Geller explained that the constant hype about a recession could increase the level of money anxiety.

“An example of how recession hype can increase peoples’ perceived anxiety and reduce their confidence in the economy can be seen in the preliminary August figures of the Michigan Survey of Consumer Sentiment,” Geller explained. “The August index decreased 6.4% from the previous month indicating that the level of consumer confidence in the economy dropped in the first couple weeks of August.”

“Since the Michigan index is based on what people think about the economy, in the form of a questionnaire, it is highly likely that the recent recession hype influenced the respondents’ confidence about the economy,” he explained.

Nearly half of experts surveyed by Zillow back in 2018 said they expect the next recession to begin sometime in 2020, according to the company’s Home Price Expectations Survey, a quarterly survey of more than 100 real estate experts and economists.

Since then, the talk surrounding recession has only increased as more and more experts begin to predict a recession by late 2019 or early 2020.

There were several dire warnings this week about the economic dangers posed by President Donald Trump’s ramped-up trade war with China.

“On a scale of 1-10, it’s an 11,” Cowen Managing Director Chris Krueger said in a note to investors, describing the economic ramifications of the trade war. 

In July, Zillow’s panel of more than 100 housing experts and economists said the next recession is expected to hit in 2020. A few even said it may begin later in 2019, while another substantial portion predict that a recession will occur in 2021. But unlike last time, the housing market won’t be the cause.

Road to the own house

5 Tips for Easier Real Estate Closings

The homebuying process is filled with excitement, joy, anxiety, stress and relief. There are so many moving parts between deciding to purchase a home and actually closing on a home. Here are excellent tips to help buyers navigate the closing process and ensure a smooth closing for all parties.

Don’t make big life changes or purchases during the home buying process. Don’t change jobs or make purchases that could change your credit score. Examples include financing new furniture or a new car, moving your money around in your accounts or paying for a vacation using your open credit. Don’t do anything that will send red flags when lenders check on your credit.

Assure the title is cleared. Your real estate attorney or title company is responsible for ordering a title report to assure everything is good before the closing. Stay in close contact with them to make sure there are no liens on the property. Liens may delay or cancel your closing.

Create and maintain a repair timeline.Assuming the seller is expected to make certain repairs on the property, make sure you document those repairs (and a deadline for their completion) and share a copy with the seller. Maintain the list and verify, at least several days before your scheduled closing, that the repairs are completed. Schedule a final walk-through the day before closing and verify again that all repairs are completed as agreed upon.

Secure proper homeowner’s insurance. Buyers should shop for and secure homeowners insurance well in advance of the closing. Be cognizant of the home’s location and know if you need to purchase flood insurance. Flood insurance is costly, yet necessary, if you live in a flood zone. If you cannot afford flood insurance, do not purchase a home located in a flood zone.

Maintain close communication with your lender.Do not assume that “no news is good news” if you don’t hear from your lender or closing agent. Because lenders often ask for information at the last minute (i.e., insurance documents, current bank statements or pay stubs), contact your lender the day before and the day of closing to assure you bring all needed documents to the closing. You should also verify with your closing agent that he or she received all loan documents. Oftentimes, it is a case of one missing document, one verification or an email that has not been returned (or lost in a spam folder).

And, “it goes without saying,” yet we will say it: Buyers need to have all paperwork in order and present at closing, including a valid ID and most likely a cashier’s check for the down payment.

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