Residential Real Estate Transaction Law Blog

Real estate and property law since 2003

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Protect Your Money from Wire Fraud Schemes during Closing

Sending an e-mail is like mailing a post card. Unless it is encrypted, there are ways other people can read the message and see what is in it. Even though e-mail is easy, it also has its dangers. Anyone in the world can try to read it, and even change what was written.

Criminals who specialize in fraud have taken notice. Fraudsters can mimic an e-mail address or domain trying to trick people into wiring funds to the wrong account. An unsuspecting buyer can get an e-mail that looks like it is from an attorney or real estate agent with instructions on sending their funds to the closing attorney. Can you tell the difference between ‘lawfirm.com’ and ‘lawfirrn.com’? These are two different domains. One is ‘L A W F I R M . C O M’ and the other is ‘L A W F I R R N . C O M’. People read e-mails fast and it is impossible to catch subtle differences in the spelling like this.

Technology has made it simple to create professional looking documents. The drawback is that it also makes it easy for the fraudsters to create similar looking documents and instructions. Even a fax or encrypted e-mail may be dangerous because criminals can also fax and send encrypted e-mails. ALTA has created a short video to show how this scam works.

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Reverse Mortgage Basics

Reverse mortgages have been around since the late 1980’s. Almost all reverse mortgages are FHA insured and follow strict guidelines. The program was designed to keep seniors in their house as long as possible and to make the equity in the house available without selling it. There is a lot of mis-information on reverse mortgages. First, the lender does not take the house after a certain number of years. The lender may foreclose only if the borrower has moved out of the house, passed away, failed to pay taxes and insurance premiums, gone twelve consecutive months without living in the house, or has conveyed in interest in the property to another person or entity. (If there are two borrowers, both must move out of the house or pass away before a lender can foreclose).

FHA recently changed some of the guidelines for disbursing funds. Perhaps the most noticeable new rule is that the borrower may only receive sixty percent of the value of the house at closing in the first year of the reverse mortgage. After the first year, the rest of the funds may be accessed.  FHA is currently proposing other changes, most notably that the borrower must be able to show an ability to pay the property taxes and insurance on the property.

A reverse mortgage closing is a little different than a forward mortgage. First, there will be two Promissory Notes and two Security Deeds. Unlike forward mortgages, lenders in a reverse mortgage must be able to make the payments or keep funds available in a line of credit for the borrower. If a lender fails and goes out of business, HUD steps in to make sure those funds will continue to be available to the borrower. The lender on the second Note and Security Deed is the Department of Housing and Urban Development because they will fulfill any of the lender’s obligations if the original lender is unable to. Second, the disclosures are much different because there are no payments being made by the borrower.  Reverse mortgages may not be for everyone, but be sure to get information from credible sources prior to making a decision.  The reverse mortgage might be an ideal solution for a lot of homeowners over the age of 62.

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Property Taxes and Exemptions

For a purchase transaction, the real estate taxes are normally pro-rated on the day of closing. No one can predict exactly what the next tax bill will be, so we normally use the previous year’s tax bill amount. One big factor in calculating tax bills are the exemptions. Each county in Georgia has their own system of exemptions for property taxes. The standard exemptions are homestead, disability, and elderly. The elderly exemption is often the largest because it eliminates, or heavily discounts, the taxes designated for the county or city school system. (And school taxes are normally the largest portion of the tax bill). If the amount used to pro-rate the taxes at closing is different than that actual tax bill, the seller and buyer will need to re-figure the pro-rated amounts. This is the one clause of a sales contract that survives after the closing. This is one reason it is a good idea to get contact information from each person involved with the transaction.

Counties are looking for ways to increase their income. One of those ways is to audit the tax exemptions to make sure the person still qualifies for the discount. If the elderly person passed away and the property is still in the estate, the elderly and homestead exemptions may be removed. If a person moved out of the house that year, the homestead exemption may be removed. When purchasing a house, be sure to look at the exemptions to get an accurate picture of what the tax bill will be. No one likes being surprised by a higher tax bill.

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Pro-Rated Property Taxes

2015 property taxes have been sent out in almost every county in the Atlanta-Metro area.  If you bought or sold a house this year, you may be due additional money for the other party’s portion of the current tax bill.  The taxes were pro-rated at closing based on the previous year’s bill. Once the tax bill has been sent, buyers and sellers should make adjustments to those pro-rated amounts based on the actual tax amount due.  The paragraph in the Sales Contract that states the parties both agree to pro-rate the property taxes survives the closing and is still enforceable. Most property taxes increased this year, so it is likely that you might owe more for your share of the tax bill.  If you have any questions about how to figure your portion of the 2015 tax bill, contact your closing attorney to help.

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Divorce and Real Estate

In a divorce, the largest asset to divide between the spouses is normally the house.  The cleanest way to take care of the asset is to sell it and divide the proceeds. Often, one spouse would like to keep the house. When an ex-spouse simply signs a Quitclaim Deed to the other spouse pursuant to a divorce decree, it does not relieve the signing party of any liability for the mortgage or promissory note. The ex-spouse may be surprised if the house goes into foreclosure and he or she’s credit score plummets.

Keeping the house normally requires the person to refinance and remove the other person from title and the mortgage. In rare cases, the lender might agree to remove the ex-spouse from the mortgage. The person keeping the house must qualify for the mortgage on their own in order to refinance, which can be an issue sometimes. Another issue that is often a problem is the condition and value of the house.  The ex-spouses must agree on a value, which is often difficult to do.  Divorce attorneys need to make sure their clients handle the real estate properly so no one is surprised down the road.   Winning the house in a divorce settlement may not be a real victory if the house has termites, liens, or mold issues.  Divorce attorneys need to complete their due diligence, which includes a title search, before agreeing to any settlement.

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Title and Settlement Costs

Sometimes it feels like the borrower/buyer is not getting much for all the fees paid at closing. Normally, the title fees are broken-down into a title exam or search fee, binder, wire, courier, and settlement/attorney fee. In Georgia, the breakdown of title charges can vary from attorney to attorney, so it is smart to compare the total amount charged for title services, (Box #4 on the GFE).  For example, Origin Title does not charge a separate wire or courier fee. Those fees are simply included in our settlement fee.

The title search fee is for someone to go to the county courthouse and print or copy vesting deeds, open mortgages, and open liens. The closing attorney should review the documents from the title search to check for errors. (For example, reviewing the documents could show that there is a mistake in the legal description of the property). After reviewing the title documents, the closing attorney’s office will prepare a title commitment to show what needs to be done before the final title policy is issued. The requirements are normally items like paying-off any mortgages, liens, or perhaps property taxes. The commitment will also list any exceptions to title, like an easement or driveway agreement that will not be covered in the title policy.

Why pay for title insurance when a title search was done? Very few people have had to make claims on their title insurance policy, so it often seems like an unnecessary cost. A lot of the title work is done upfront to avoid claims, but there are title problems that cannot be discovered by a title search. A good example is a forged release of mortgage or a lien that is not indexed property. Neither item would show on a title search and would costs thousands of dollars in court costs defending title, or paying the amounts owed.

What is covered with the settlement fee? After a title search, the closing attorney’s office obtains payoff statements for any mortgages or liens on the property. At closing, the attorney prepares the settlement statement, collects and disburses all the funds for closing. After closing, the attorney sends the funds to payoff the mortgage or lien holder and files the new deed or mortgage at the county courthouse. Once the deeds are recorded, the attorney sends them back to the new owner or lender. The closing attorney has a file open for about three months to get everything completed.  Even though the only time a buyer and seller see us is at the closing table, there is a lot more time and work involved with each closing both before and after the actual signing.

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Property Taxes

Property taxes are superior to most every other lien. This superiority is why lenders often require an escrow account to make sure taxes are paid on time. You can lower your taxes on your residence by filing a homestead exemption with the county tax commissioner.  You must own the property as of January 1st though in order to qualify for the exemption.  Each county has its own process and deadline. Many counties now allow you to apply year-round (even if it does not take effect until the next calendar year) and on-line.   Cities who collect their own taxes will also apply the homestead exemption.  The exemption varies from county to county and from city to city.

When you go to sell or purchase real property, the taxes will be pro-rated as of the date of the sale. If the  current year has not been issued yet, the amount will be based on the previous year’s taxes. Most property tax bills cover the full year. For example, the Gwinnett county tax bill due in November of 2011 was for January 1st, 2011 through December 30th, 2011. Review your tax bill to make sure it shows you have all the proper exemptions and make sure you have filed for your exemptions before the deadline.

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Beware Deed Scam

When I bought my house, I received a notice in the mail informing me that some government entity recommends that I have a certified copy of my recorded deed.  The notice looks very official and includes an offer to retrieve a certified copy of your deed for a small fee of about $60.  The notice is very misleading and if you read the small print at the bottom, it states the company is not affiliated with any government agency and is simply an advertisement/solicitation.  It is just a trick to get people to send them $60 so they can pull the deed from the courthouse and mail it to you. While it is a good idea to have a copy of your deed, you will receive the original deed from the closing attorney and there is no need to pay an additional $60 for a certified copy.  You can get your deed at any time for fifty cents a page at the courthouse, and often on-line.

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Good Funds

In the past, buyers have been able to bring certified checks to closing.  This changed when Georgia revised its “Good Funds” law. Georgia law prohibits us from accepting any checks, even certified checks, in excess of  $5,000.  As a buyer, if you need to bring more than $5,000 to closing, it must be sent as a wire transfer.

One of the reasons for this requirement  is that we should not disburse funds from our escrow account until the funds have cleared.  Checks can take days to clear, and sellers and lenders are not going to wait a couple days to receive funds.  Most lenders will only accept wires to payoff existing mortgages.

Many agents and buyers are accustomed to bringing certified checks and we know it can be a pain, but funds over $5,000 always need to be wired.

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Fixing Tolerance Cures for Lenders and Brokers

The changes made last year to the Good Faith Estimate disclosure and HUD1 Settlement Statement require lenders or brokers to cover  increases in certain fees.   Even after a full year, Lenders and brokers are paying far too much to cure these tolerance violations.

To help eliminate this problem, Origin Title and Escrow, Inc is now listed on www.closing.com and Smart GFE. Smart GFE allows loan processors to download our fees directly into their software.  Even if you are not a lender, you can still compare our fees with other closing attorneys and title companies at www.closing.com.

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Did Closing Costs Really Go Up Over 30% Last Year?

In 2010, title and closing costs in Georgia for a $200,000 loan averaged $2,201. (Total Fees totaled $3,604). According to the Bankrate survey, the national average for total closing costs was $3,741. As of January 1st, 2010, Lenders and Brokers are required to provide a standardized Good Faith Estimate. Prior to 2010, the format of the Good Faith Estimate was different from lender to lender. The new standard form was created to allow borrowers compare costs more easily and hopefully encourage borrowers to shop around.

You may see articles quoting a report showing that closing costs went up 36% in 2010. The survey of costs only looked at Good Faith Estimates and not the actual costs. Some of the increase is likely because the new rules on Good Faith Estimates. Certain loan fees are not allowed to change at all from the Good Faith Estimate to closing. Title costs and insurance are allowed to go up by 10%. The requirement to disclose all lender fees on the Good Faith Estimate likely increased the amounts disclosed. Brokers and Lenders likely over-disclosed in order to avoid paying any of the fees themselves. The seemingly rise in cost is largely due to the disclosure rules. Costs did go up, but not as much as the study claims.

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Origin Title Body of Work

Since 2003, John C. Bennett has performed thousands of closings.

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