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<h2>Your First Step Toward Buying a Home</h2>When preparing to buy a home, the first thing many homebuyers do is look at the real estate ads in newspapers, magazines and listings on the Internet. Some potential buyers read how-to articles like this one. The next thing you should do - before you call on an ad, before you talk to a REALTOR®, before you shop for interest rates - is look at your savings. Why? Because determining how much money you have available for down payment and closing costs affects almost every aspect of buying a home - including how you write your purchase offer, the loan programs you qualify for, and shopping for interest rates.<h2> Mortgage Programs</h2>If you only have enough available for a minimum down payment, your choices of loan program will be limited to only a few types of mortgages. If someone is giving you a gift for all or part of the down payment, your options are also limited. If you have enough for the down payment, but need the lender or seller to cover all or part of your closing costs, this further limits your options. If you borrow all or a portion of the down payment from your 401K or retirement plan, different loan programs have different rules on how you qualify. Of course, if you have enough for a large down payment, then you have lots of choices. Your loan choices include such varied programs as conventional fixed rate loans, adjustable rate mortgages, buydowns, VA, FHA, graduated payment mortgages and all the varieties of each.<h2> Shopping for Rates</h2>A very important reason you need to have at least some idea of your down payment is for shopping for interest rates. Some loan programs charge a slightly higher interest rate for minimal down payments. Plus, the interest rates for different loan programs are not the same. For example, conventional, VA, and FHA all offer fixed rate loans. However, the rates vary from one program to another. If you shop lenders by phone, the loan officer will be able to tell you which programs fit and quote your rates accordingly. However, if you are shopping on the Internet, you have to develop some idea of your loan program on your own.<h2> Writing Your Offer</h2>Another reason you need to have a clue about your down payment is because it affects how you write your offer to purchase a home. Not only are you required to put your down payment information in the offer, but also different loan programs have different rules that also affect how you write your offer. This is especially important when dealing with FHA and VA loans. If you are asking the seller to pay all or part of your closing costs, you have to be certain your loan program allows what you are asking. For smaller down payments, lenders allow the seller to pay less closing costs than for larger down payments. Some loan programs will allow a seller to pay certain types of costs, but not others. Finally, your down payment also affects your ability to qualify for a loan. When you make a small down payment, lenders are fairly strict about having you conform to their underwriting guidelines. For larger down payments, they will tend to make allowances or exceptions to the rules.<h2> Conclusion</h2>As you can see, the down payment affects every choice you make when you buy a home. Although you should look at ads, familiarize yourself with neighborhoods, learn about prices, and read as much as you can - when you get ready to take action - the first thing you should do is figure out how much money you have available for the purchase.

Your Savings and Down Payment

Have These Items Ready When You Apply For a Loan It used to be that lenders mailed out verifications to employers, banks, mortgage companies, and so on, in order to verify the data supplied by borrowers. Nowadays, the interest is often in speed and getting answers quickly so alternate documentation has become more widely used. Alternate documentation means that underwriting answers can be obtained with information supplied directly from the borrower instead of waiting around for verifications to come back in the mail. The following is required for most standardized loans as part of alternate documentation processing. Items may differ according to whether your loan is a conforming (Fannie Mae or Freddie Mac), non-conforming (jumbo) loan, government loan, or a portfolio loan. Verifications are still mailed out, but usually as part of quality control procedures. These are the things you need to supply to your lender to get a quick approval using alternate documentation<h2> Income Items</h2>• W2 forms for the last two years • Pay stubs covering a 30 day period • Federal tax returns (1040s) for the last two years, if: &nbsp;&nbsp;&nbsp;&nbsp;• you are self-employed &nbsp;&nbsp;&nbsp;&nbsp;• earn more than 25% of your income from commissions or bonuses &nbsp;&nbsp;&nbsp;&nbsp;• own rental property &nbsp;&nbsp;&nbsp;&nbsp;• or are in a career where you are likely to take non-reimbursed business expenses • Year-to-Date Profit and Loss Statement (for self employed) • Corporate or partnership tax returns (if applicable) • Pension Award letter (for retired individuals) • Social Security Award letters (for those on Social Security)<h2> Asset Items</h2>• Bank statements for previous two months (sometimes three) on all accounts. All pages. • Statements for two months on all stocks, mutual funds, bonds, etc. • Copy of most recent 401K statement (or other retirement assets) • Explanations for any large deposits and source of those funds • Copy of HUD1 Settlement Statement on recent sales of homes • Copy of Estimated HUD1 Settlement Statement if a previous home is for sale, but not yet closed • Gift letter (if some of the funds come as a gift from a family member) • Gifts can also require: &nbsp;&nbsp;&nbsp;&nbsp;• Verification of donor’s ability to make the gift (bank statement) &nbsp;&nbsp;&nbsp;&nbsp;• Copy of the check used to make the gift &nbsp;&nbsp;&nbsp;&nbsp;• Copy of the deposit receipt showing the funds deposited into bank account or escrow<h2> Credit Items</h2>• Landlord’s name, address, and phone number (for verification of rental) • Explanations for any of the following items that may appear on your credit report: &nbsp;&nbsp;&nbsp;&nbsp;• Late payments &nbsp;&nbsp;&nbsp;&nbsp;• Credit inquiries in the last 90 days &nbsp;&nbsp;&nbsp;&nbsp;• Charge-offs &nbsp;&nbsp;&nbsp;&nbsp;• Collections &nbsp;&nbsp;&nbsp;&nbsp;• Judgments &nbsp;&nbsp;&nbsp;&nbsp;• Liens • Copy of bankruptcy papers if you have filed bankruptcy within the last seven years<h2> Other</h2>• Copy of purchase agreement (if you have already made an offer) • To document receipt of child support (if you desire to show it as income) &nbsp;&nbsp;&nbsp;&nbsp;• Copy of Divorce Settlement (to show the amount) &nbsp;&nbsp;&nbsp;&nbsp;• Copies of twelve months canceled checks to document actual receipt of fund<h2> FHA Loans</h2>• Copy of Social Security Card (or other documentation of social security number) • Copy of Driver’s license<h2> VA Loans</h2>• Copy of DD214<h2> Refinances</h2>• Copy of Note on existing loan • Copy of HUD1 Settlement Statement on existing loan • Name, address, phone number, loan number of existing loan/lender

Items You Need When Applying For a Loan

<h2>Mortgage Bankers.</h2>Mortgage Bankers are lenders that are large enough to originate loans and create pools of loans, which are then sold directly to Fannie Mae, Freddie Mac, Ginnie Mae, jumbo loan investors, and others. Any company that does this is considered to be a mortgage banker. Some companies don’t sell directly to those major investors, but sell their loans to the mortgage bankers. They often refer to themselves as mortgage bankers as well. Since they are actually engaging in the selling of loans, there is some justification for using this label. The point is that you cannot reliably determine the size or strength of a particular lender based on whether or not they identify themselves as a mortgage banker.<h2> Portfolio Lenders.</h2>An institution that lends their own money and originates loans for itself is called a portfolio lender. This is because they are lending for their own portfolio of loans and not worried about being able to immediately sell them on the secondary market. Because of this, they don’t have to obey Fannie/Freddie guidelines and can create their own rules for determining credit worthiness. Usually these institutions are larger banks and savings &amp; loans. Quite often only a portion of their loan programs are a portfolio product. If they are offering fixed rate loans or government loans, they are certainly engaging in mortgage banking as well as portfolio lending. Once a borrower has made the payments on a portfolio loan for over a year without any late payments, the loan is considered seasoned. Once a loan has a track history of timely payments it becomes marketable, even if it does not meet Freddie/Fannie guidelines. Selling these seasoned loans frees up more money for the portfolio lender to make additional loans. If they are sold, they are packaged into pools and sold on the secondary market. You will probably not even realize your loan is sold because, quite likely, you will still make your loan payments to the same lender, which has now become your servicer.<h2> Direct Lenders.</h2>Lenders are considered to be direct lenders if they fund their own loans. A direct lender can range anywhere from the biggest lender to a very tiny one. Banks and savings &amp; loans obviously have deposits with which they can fund loans, but they usually use warehouse lines of credit for drawing the money to fund the loans. Smaller institutions also have warehouse lines of credit from which they draw money to fund loans. Direct lenders usually fit into the category of mortgage bankers or portfolio lenders, but not always.<h2> Correspondents.</h2>Correspondent is usually a term that refers to a company that originates and closes home loans in their own name, then sells them individually to a larger lender, called a sponsor. The sponsor acts as the mortgage banker, re-selling the loan to Ginnie Mae, Fannie Mae, or Freddie Mac as part of a pool. The correspondent may fund the loans themselves or funding may take place from the larger company. Either way, the sponsor usually underwrites the loan. It is almost like being a mortgage broker, except that there is usually a very strong relationship between the correspondent and their sponsor.<h2> Mortgage Brokers.</h2>Mortgage Brokers are companies that originate loans with the intention of brokering them to lending institutions. A broker has established relationships with these companies. Underwriting and funding takes place at the larger institutions. Many mortgage brokers are also correspondents. Mortgage brokers deal with lending institutions that have a wholesale loan department.<h2> Wholesale Lenders.</h2>Most mortgage bankers and portfolio lenders also act as wholesale lenders, catering to mortgage brokers for loan origination. Some wholesale lenders do not even have their own retail branches, relying solely on mortgage brokers for their loans. These wholesale divisions offer loans to mortgage brokers at a lower cost than their retail branches offer them to the general public. The mortgage broker then adds on his fee. The result for the borrower is that the loan costs about the same as if he obtained a loan directly from a retail branch of the wholesale lender. Banks and savings &amp; loans usually operate as portfolio lenders, mortgage bankers, or some combination of both. Credit Unions usually seem to operate as correspondents, although a large one could act as a portfolio lender or a mortgage banker.

Types of Mortgage Lenders

<h2>What is a FICO® Score?</h2>FICO® stands for Fair Isaac &amp; Company and is the name for the most well known credit scoring system, used by Experian. The credit bureau’s computer evaluates a complete credit profile and assigns a score, which is used to estimate credit worthiness. Each of the three bureaus (Experian, Trans Union, Equifax) employs its own scoring system, so a given person will usually have 3 separate scores. Someone with a higher score will be viewed as a better risk than someone with a lower score. Typically, scores will range from about 600 to 700 or above, although some cases will be outside this range.<h2> What Kind of Score Do I Need for a Home Loan?</h2>There are as many answers to this question as there are loan programs available. Most lenders will take the average of all 3 scores to evaluate an application. Niche loans, such as Easy Qualifier and low down payment loans will have higher FICO® requirements.<h2> How is My Score Determined?</h2>The FICO® model has 5 main elements: 1. Past payment history (about 35% of score) The fewer the late payments the better. Recent late payments will have a much greater impact than a very old Bankruptcy with perfect credit since. Myth - paying off cards with recent late payments will fix things. Payoffs do not affect payment history. 2. Credit use (about 30% of score) Low balances across several cards is better than the same balance concentrated on a few cards used closer to maximums. Too many cards can bring down the score, but closing accounts can often do more harm than good if the entire profile is not considered. BE CAREFUL WHEN CLOSING ACCOUNTS! 3. Length of credit history (15% of score) The longer accounts have been open the better for the score. Opening new accounts and closing seasoned accounts can bring down a score a great deal. 4. Types of credit used (10% of score) Finance company accounts score lower than bank or department store accounts. 5. Inquiries (10% of score) Multiple inquiries can be a risk if several cards are applied for or other accounts are close to maxed out. Multiple mortgage or car inquiries within a 14 day period are counted as one inquiry.<h2> How Can I Raise My Score</h2>Your score can only be changed by the way that item is reported directly to the credit bureaus (Experian, TU, Equifax). Written confirmation from the creditor is required. It is best to make these corrections before you try to purchase a home, because you can never be sure the exact impact a change will have on your score.<h2> What Does This Mean to Me?</h2>You should have your credit reviewed BEFORE you look for a home, and work with a PROFESSIONAL loan officer to make sure your loan is based on the most accurate information.

WHAT'S A FICO®?

<h2>What kind of lender is best?</h2>If you ask a loan officer, “What kind of lender is best?” the answer will be whatever kind of company he works for and he will give you a list of reasons why. If you meet the same loan officer years later, and he works for a different kind of lender, he will give you a list of reasons why that type of lender is better. REALTORS® will also have differing opinions, and those opinions have and will continue to change over time. In the past, it seemed like most would recommend portfolio lenders. Now, they usually recommend mortgage bankers and mortgage brokers. Most often they direct you to a specific loan officer who has demonstrated a track record of service and reliability. This article discusses the advantages and disadvantage of different types of institutions, not the individual loan officers. However, it is often more important to choose the correct loan officer, not the institution. The loan officer has many responsibilities, one of which is to act as your representative and advocate to the lender he works for or the institutions he brokers loans to. You want someone who has proven dependable and ethical in the past. Regarding the institutions, the truth of the matter is that each type of lender has strengths and weaknesses. This does not even take into account the variety of other factors that influence whether a lender is good or bad. Quality can vary, depending on the loan officer, the support staff, which branch or office you are obtaining your loan from, and a variety of other factors.<h2> PORTFOLIO LENDERS</h2>Savings &amp; Loans are quite often portfolio lenders, as are some banks. Portfolio lenders generally promote their own portfolio loans, which are usually adjustable rate loans. They will often pay more compensation to their loan officers for originating a portfolio product than for originating a fixed rate loan. You may also find that they are not as competitive as mortgage bankers and brokers in the fixed rate loan market. However, it is often easier to qualify for a portfolio loan, so borrowers who may not qualify for a fixed rate loan may be able to obtain a loan from a portfolio lender. A borrower may be able to qualify for a larger loan from a portfolio lender than he could obtain from a fixed rate lender. Portfolio lenders also can serve as niche lenders because certain things are more important to them than meeting the more standardized underwriting guidelines of a mortgage banker. An example would be a savings &amp; loan, which is more concerned with an individual’s savings history than being able to fully document income and other things. If you apply for a loan with a portfolio lender and you are declined, you usually have to start the process over with a new company.<h2> MORTGAGE BANKERS</h2>If we are talking about the larger mortgage bankers, you can count on them having several strengths. For the biggest ones, you will recognize the brand name. Usually, they are much better at promoting special first time buyer programs offered by states and local governments, that have lower interest rates and costs than the current market rate. These programs are often available to buyers who have not owned a home in the last three years and fall within certain income guidelines. Mortgage bankers may incur problems because they are just too big to manage, or they may operate like well-oiled machines. If you are buying a home and you need a VA or FHA loan and the development you are buying in has not yet been approved, they will be better at getting it approved than other lenders. If your home loan is declined for some reason, many mortgage bankers allow their loan officers to broker the loan to another institution. However, because your loan officer is so used to promoting the company’s product, he may not be familiar with which institution may be the best one to submit your loan to. Another reason is because wholesale lenders do not expect to get many loans from direct mortgage bankers, so they do not expend much marketing effort on them.<h2> BANKS and SAVINGS &amp; LOANS</h2>Their major strength is that you will recognize their name. In addition, they will usually be operating as a mortgage banker, a portfolio lender, or both, and have the same weaknesses and strengths.<h2> MORTGAGE BROKERS</h2>The major strength of mortgage brokers is that they can shop the wholesale lenders for the best rate much easier than a borrower can. They also learn the “hot points” of certain wholesale lenders and can handpick the lender for a borrower that may be unique in some way. He will be able to advise you whether your loan should be submitted to a portfolio lender or a mortgage banker. Another advantage is that, if a loan gets declined for some reason, they can simply repackage the loan and submit it to another wholesale lender. One additional advantage is that mortgage brokers tend to attract a high number of the most qualified loan officers. This is not universal because mortgage brokers also serve as the training ground for those just entering the business. If you have a new loan officer and there is something unique about you or the property you are buying, there could be a problem on the horizon that an experienced loan officer would have anticipated. A disadvantage is that mortgage brokers sometimes attract the greediest loan officers, too. They may charge you more on your loan, which would then nullify the ability of the mortgage broker being able to shop for the lowest rate.<h2> WHOLESALE LENDERS</h2>Borrowers cannot get access to the wholesale divisions of mortgage bankers and portfolio lenders without going through a broker.<h2> When REALTORS® or Builders Recommend a Lender</h2>If your REALTOR® or builder makes a suggestion for a lender, be sure to talk to that lender. One reason REALTORS® and builders make suggestions is the fact that they have regular dealings with this lender and have come to expect a certain amount of reliability. Reliability is extremely important to all parties involved in a real estate transaction. On the other hand, a recent trend in mortgage lending has been for real estate companies and builders to own their own mortgage companies or create “controlled business arrangements” (CBA’s) in order to increase their profitability. These mortgage brokers sometimes become used to having what is essentially a captured market and may not necessarily offer you the lowest rates or costs. Some real estate companies also offer different types of incentives to their REALTORS® in exchange for recommending their company-owned mortgage and escrow companies or lenders with whom they have CBA’s. Dealing with one of these lenders is not necessarily a bad thing, though. The builder or real estate company often feels they have more ability to expedite matters when they own the company or have a controlled business relationship. They cannot usually influence the underwriting decision, but they can sometimes cut through red tape to handle problems or speed up the process. Builders are especially forceful on having you use their lender. One reason is that there are certain intricacies in dealing with new homes. If you use a loan officer who usually deals with refinances or resale home loans, he may not even be aware of how different it is to close a mortgage on a new home and this can lead to problems or delays. It is in your interest to know if there is any kind of ownership relationship or controlled business arrangement between the real estate or builder and the lender, so be sure to ask. Do not automatically disqualify such a lender, but be sure to be more vigilant on getting the best interest rate and the lowest costs.<h2> Conclusion</h2>Make sure to do a little shopping. By knowing the interest rates in your market and making sure your loan officer knows you are looking at rates from other institutions, you can use that as leverage to make sure you are obtaining the best combination of service and the lowest rates.

The Advantages of Different Types of Mortgage Lenders

How would you like a mortgage loan where you did not have to make the whole payment if you did not want to? Or would you like a loan with an interest rate about 1% below a thirty-year fixed rate mortgage and pay zero points? Or a loan where you did not have to document your income, savings history, or source of down payment? How would you like a mortgage payment of only 1.95%? You can have all that with the 11th District Cost of Funds (COFI) Adjustable Rate Mortgage. Sound too good to be true? Sound like a bunch of hype? Each statement above is true. However, it is also only part of the story and loan officers do not always tell you the whole story when promoting this loan. Other loan officers may try to scare you away from adjustable rate mortgages. However, once you become aware of all the details of the loan, it is an excellent way to buy the house of your dreams, especially when fixed rates begin to go up.<h2> ARMs in General</h2>Adjustable rate mortgages all have certain similar features. They have an adjustment period, an index, a margin, and a rate cap. The adjustment period is simply how often the rate changes. Some change monthly, some change every six months, and some only adjust once a year. Indexes are simply an easily monitored interest rate that moves up and down over time. Adjustable rate mortgages have different indexes. The margin is the difference between your interest rate and the index. The margin does not change during the term of the loan. So if you have an adjustable rate mortgage and you wanted to calculate your interest rate on your own, all you have to do is look up the index in the paper or on the internet, add the margin, and you have your rate.<h2> Indexes and the 11th District</h2>The “Prime Rate” you hear about in the news is one interest rate index, although it is very rare that mortgages are tied to this index. It is more common to find adjustable rate mortgages tied to different treasury bill indexes, the average interest rate paid on certificates of deposit, the London Inter-Bank Offered Rate (LIBOR), or the 11th District Cost of Funds.<h2> COFI ARM Index</h2>The 11th District Cost of Funds (COFI) is the weighted average of interest rates paid out on savings deposits by banking institutions in the 11th district of the Federal Home Loan Bank (FHLB), which is located in San Francisco. The 11th District includes the states of California, Nevada, and Arizona. The COFI index moves slower than the other indexes, making it more stable. It also lags behind actual changes in the interest rate market. For example, when rates begin to go up, the COFI index may continue to decline for a couple of months before it also begins to rise.<h2> The Margin and Interest Rates</h2>The margin on the COFI ARM typically ranges between 2.25-3%.<h2> Monthly Adjustments Sound Scary, but...</h2>Although you can get a COFI ARM with an adjustable period of six months, you can get a lower margin if you go for the monthly adjustment period. Since the margin plus the index equals your interest rate, the lower margin is an advantage and most people choose the monthly adjustment. Monthly adjustments sound scary to the uninitiated, but keep in mind that this is a slow moving index. Most other ARMS have an annual cap of 2% a year. Since 1981, when the FHLB began tracking the index, the most it has moved during any calendar year is 1.6%. So why get a higher margin just to get a rate cap that you probably will not use anyway? The“life-of-loan” cap for the COFI ARM is usually 11.95%. The most recent year that this cap could have been reached was 1985. Plus, most experts do not expect a return to the interest rates of the early 1980’s when interest rates were pushed up artificially to combat the inflation of the 1970’s.<h2> Make Only Part of Your Payment?</h2>This is the really interesting feature of the loan. You do not have to make the whole payment. Each month you get a bill that has at least three payment options. One choice is the full payment at the current interest rate. A second choice allows you to pay only the interest that is due on the loan that particular month, but does not pay anything towards the principal. Finally, the third option gives you the choice to pay even less than that and is called the “minimum payment.” The minimum payment when you start your loan can be calculated as low as 1.95%. Keep in mind that this is not the note rate on your loan, but just a way to calculate your minimum payment.<h2> Deferred Interest and Amortization</h2>Of course, if you only make the minimum payment each month, you are not paying all of the interest that is currently due that month. You are deferring some of the interest that is currently due on the loan so you will have to pay it later. The lender keeps track of this deferred interest by adding it to the loan and the loan balance gets larger. Neither you nor the lender wants this to continue forever, so your minimum payment increases a bit each year. The payment cap on the loan is 7.5%, which also has nothing to do with the interest rate. All it means is the most your minimum payment can increase from one year to the next is seven and a half percent. For example, if your minimum payment is $1000 this year, next year the most it could be is $1075. This continues each year until your payment is approximately equal to the payment at the full note rate. Just in case, there are fail-safes built into the loan. If you continue making only the minimum payment and your current balance ever reaches 110% of the beginning balance, the loan is re-amortized to make sure you pay it off in thirty years (or forty years, whichever option you chose). Every five years the loan is re-amortized to make sure it pays off within the term of the loan.<h2> Stated Income and Other Features</h2>Many COFI lenders allow Homebuyers with good credit to apply without documenting their income, assets, or source of down payment. Of course, you have to make a twenty or twenty-five percent down payment on your home purchase. This is helpful for self-employed borrowers or those who have jobs where it is difficult to document their income. Plus, some people just do not like the bother of supplying W2 forms, tax returns and pay-stubs. Anyway, it makes for a quick and easy loan approval.<h2> Sub-Prime COFI ARMs</h2>Some people have less than perfect credit and they are used to being charged outrageous rates for past problems. Some COFI lenders offer this same loan but have a slightly higher starting payment and a higher margin. The end result is that your interest rate would be about one percent higher.<h2> Who Should Get This Loan?</h2>Most people who get the COFI ARM are purchasing a home between $300,000 and $650,000, but it is not limited to that. It is a real favorite of those working in the financial industry and those with higher incomes. One reason these groups like this particular loan is because they consider any deferred interest to be an extended loan at a very attractive rate. By making the minimum payment, they can do other things with the money. Homebuyers whose income has peaks and valleys, such as self-employed or commissioned salespeople also like the loan, because it provides flexibility in the monthly payment. During a slow month they can make the minimum payment if they choose. Another reason borrowers like the loan is because it allows for tax planning. The borrower can defer interest payments and at the end of the year, analyze their tax situation. If it serves their tax interests, they can make a lump sum payment toward any interest that has been deferred and deduct it for tax purposes.<h2> Skipping the Starter Home or Move-Up Home</h2>If you’re buying a home with the intention of living in it for only a few years before you move up to a bigger home, the COFI ARM makes sense, too. With this loan and its low start payment you can often qualify for a larger home than you can when applying for a fixed rate loan. This allows you to skip the intermediate purchase and move up immediately to the home you really want, which makes more sense and saves you money. If you buy a home then sell it to move up to a bigger home, you are going to have to pay a REALTOR’S® commissions and closing costs. On a $300,000 house, this would be around $25,000. If you skip buying that home and buy the home you really want, you save that money. Plus, you save money in another way. Say you live in your intermediate purchase for five years, then move up and buy another home with another thirty-year mortgage. That is thirty-five years of home loans. If you buy your ideal home now, you save five years of mortgage payments. Depending on your loan amount, that can be a lot of cash.<h2> Conclusion</h2>So, when rates start going up this is an attractive alternative to a fixed rate mortgage. It even makes sense for some borrowers when rates are low. Something we also did not mention is that most COFI lenders also give you a fourth option on your monthly mortgage statement, which allows you to pay it off quicker.

Which ARM is the Best Alternative?

There really is no such thing as a no-cost mortgage loan. There are always costs, such as appraisal fees, escrow fees, title insurance fees, document fees, processing fees, flood certification fees, recording fees, notary fees, tax service fees, wire fees, and so on, depending on whether the loan is a purchase or a refinance. The term “no-cost” actually means that your lender is paying the costs of the loan. All a no-cost loan means is that there is no cost to you, the borrower. Except that you pay a higher interest rate.<h2> Understand How Loans Are Priced</h2>A variation of the no-cost loan is the “no points” loan, or even the “no points, no lender fees” loan. On these loans you pay all the costs associated with buying a house or refinancing, but you do not have to pay the lender associated fees or points. However, since lenders and loan officers do not do anything for free, the profit has to come from somewhere. So where does it come from? First, you have to understand how loans are priced and how mortgage lenders and loan officers earn income. Each morning mortgage companies create rate sheets for loan officers. The rates usually change slightly from day to day. In volatile markets they change several times a day. On the rate sheet, there are many different programs, including the thirty year fixed rate. There will be one column that lists several different interest rates and another column that lists the cost for that particular rate. For example: Rate	Cost (points) 6.250%	2.000 6.375%	1.500 6.500%	1.000 6.625%	0.500 6.750%	0.000 6.875%	(0.500) 7.000%	(1.000) 7.125%	(1.500) 7.250%	(2.000) In the above example, 6.75% has a “par” price, which means it has a zero cost. The lower in rate you go, the higher the cost, or points. A point is equal to one percent of the loan amount. The parentheses in the cost column for the higher interest rates indicate a negative number. For example, (1.500) equals -1.500, which means instead of having a cost associated with the loan, the lender is willing to pay out money for those interest rates. This is called premium or rebate pricing.<h2> Zero Cost Loans</h2><h2>How Mortgage Companies and Loan Officers Make Money</h2>The above rate sheet is not a rate sheet designed for public review. In fact, most lenders have a policy that the public cannot see their internal rate sheet. This rate sheet is designed for loan officers and the cost column is the loan officer’s cost, not the cost to the borrower. When the loan officer gives you an interest rate quote, he will add on a certain amount, usually one to one and a half points. Most companies leave it up to the loan officer’s discretion how much to add on to the base cost. However, they usually require at least a minimum add-on, which is usually one point. The loan officer’s commission depends on his split with the company, which varies. He receives a portion of the add-on and the rest goes to the company. If we assume the loan officer is adding on one point, and you were willing to pay one point for your loan, then your rate would be (according to this rate sheet) 6.75%. You would pay one percentage point and receive an interest rate of six and three-quarters. If you wanted a lower rate and were willing to pay two points, you could get 6.5%. If you wanted a “no points” loan, then your rate would be 7%. The loan officer and the mortgage company would split the one point rebate, listed as (1.000) on the rate sheet. See how it works? In addition to the cost noted on the rate sheet above, lenders have certain other fees they collect, too. These can include document fees, processing fees, underwriting fees, warehouse fees, flood certification fees, wire transfer fees, tax service fees, and so on. Usually, you will not be charged all of these fees, it is just that different lenders call them different things. Some of them are legitimate costs to the lender and some of them are simply fees designed to generate additional income to the mortgage company. They are customary in today’s mortgage market and can vary from around $600 to $1,300. In addition, there will usually be an appraisal fee and a credit report fee. Appraisals and credit reports are usually contracted out to independent companies even though these are considered to be lender fees. Note that it is common for companies who charge higher fees to have a slightly lower interest rate and companies that charge lower fees will usually have a slightly higher interest rate. So if you shop entirely based on fees, you may actually spend more money in the long run because your interest rate may be higher. The point is that if you want a “no points - no lender fees” loan, then on our rate sheet above, you may get an interest rate of 7.125%. That is because the loan officer has to bump the interest rate even further than on a “no points” loan in order to cover his own company’s fees. If you want a “no cost” loan, then the loan officer has to bump your interest rate even further. That is because all of the costs on your purchase or refinance do not come from the lender. The escrow or settlement company involved in your transaction will charge a fee that must be paid. The lender will require title insurance and the title insurance company charges a fee for providing this insurance. If your new lender requires information from your homeowner’s association (if you have one) then the homeowner’s association will most likely charge a fee for providing those documents. If you are refinancing, your current lender will usually charge at least two fees: a demand fee, and a reconveyance fee. The demand fee is charged simply for providing payoff information. The reconveyance fee is charged because your current lender prepares a document that releases your property as collateral for their outstanding loan. This document is called a reconveyance. These charges will add about one additional point to how much the loan officer must collect in premium pricing in order to cover the costs associated with your refinance or purchase. For a zero cost loan, he will normally need to collect somewhere in the neighborhood of two and a half points. Because points are a percentage of your loan amount and most of the costs are fixed, it takes fewer points to provide zero costs on higher loan amounts. On smaller loan amounts it takes more. One percent of $200,000 is $2,000 and one percent of $100,000 is only $1,000, so you can see how it is easier to cover costs on larger loans.<h2> Does it make sense to do a zero cost loan?</h2>On a $200,000 thirty year fixed rate loan, the difference in monthly mortgage payments will be about $87, using the example rate sheet on the first page. Over thirty years, it works out that you will pay more than $30,000 extra for getting a zero cost loan. So if you intend to remain in the home for a long period of time it just doesn’t make sense. Suppose you intend to stay for only five years. On a purchase, using the $200,000 example, if you stayed longer than fifty-five months, it would make more sense to pay your own costs and get the lower interest rate. If you kept the loan for a shorter time, then it makes more sense to pay zero costs and get a higher interest rate. Except for one thing. If you knew you were only going to be staying in the home for five years you would probably not want a thirty-year fixed rate, anyway. You would get a loan that has a fixed payment for the first five years, then convert to an adjustable rate or whatever fixed rates are five years from now. These loans have an interest rate almost a half percent lower than thirty year fixed rate loans. Since it is practically impossible to do a zero cost loan on this type of loan, you would have to compare a zero cost thirty year fixed rate loan to paying points on a loan with a fixed payment for five years. The difference in payments would be about $150. The two and a half point rebate equals $5,000. Working out the math, if you stayed in the home longer than thirty-three months, it would make more sense to pay the points and get the loan with the five-year fixed rate. Finally, carry the discussion one step further. Suppose you know you are going to be in the new loan for less than three years? Doesn’t it make sense to get a “zero cost” loan then? No. Then you get an adjustable rate loan. As long as the start rate is two percent lower than the current fixed rate, you cannot lose. The first year you will save a lot of money. The second year you will probably break even. The third year, you will probably give up some of the savings from the first year, but not all of it. Zero cost loans just don’t make sense for most homebuyers. But they sound really good in an advertisement!<h2> Exceptions:</h2>• On a FHA Streamline Refinance Without an Appraisal (not a purchase - which is what the article talks about), it makes sense to do a zero cost loan. This is mostly because the new loan has to be exactly the same amount as the existing balance of the current loan. • If the homebuyer only has enough money for a down payment and none to cover closing costs, PLUS no arrangement can be made for the seller to pay closing costs, then zero cost may make sense. (However, I would still recommend negotiating terms with the seller - be willing to pay a higher price in exchange for the seller paying your costs.)

The No-Cost Thirty Year Fixed Rate Mortgage

An alternative to a non-conforming loan is the use of a land contract, which is allowed in some states. A land contract is an agreement between a buyer and a seller, where the buyer agrees to make periodic payments to the seller. The title to the property only transfers to the land contract buyer on fulfillment of the land contract obligations.
 
 A land contract can be helpful for those who need time to establish or improve their credit rating. There are only small closing costs, and payment can help establish a good mortgage payment record. This can help establish an overall good credit rating, and it is possible for the buyer to later refinance the land contract with a conforming loan.
 
 On the other hand, there are risks associated with land contracts. Land contract purchases are not necessarily recorded in the public record, and there are no guarantees that the seller will be able to transfer a clear title to the buyer upon fulfillment of the land contract. There also is no lender assuring that the purchase price for the property is justified, and no inspection of the property’s condition.
 
 Another alternative to a non-conforming loan is assuming the seller’s mortgage. By assuming a mortgage, if the mortgage is assumable, it is possible to save on closing costs, and may allow you to obtain a favorable interest rate.

Land Contract

Have you received an advertisement offering to save you thousands of dollars on your thirty-year mortgage and cut years off your payments? With email spam becoming more pervasive as everyone tries to get rich quick on the Internet, these ads are popping up with troublesome regularity. The ads promote a Biweekly Mortgage and for the most part, do not come from a mortgage lender. Exclamation points punctuate practically every claim: • No closing costs! • No refinancing! • No points! • No credit check! • No appraisal! • Save thousands! • Cut years off your mortgage! To achieve these wonderful savings all you have to do is allow half of your mortgage payment to be deducted from your checking account every two weeks. It’s easy. Of course, there is a small set-up fee and usually a transaction fee with every automatic deduction. Essentially, the ads are truthful in almost every respect. They just want to charge you money for something you can do on your own for free.<h2> The Basics:</h2>Normally, you make twelve mortgage payments a year. Since there are fifty-two weeks in a year, a biweekly mortgage equals 26 half-payments a year. The equivalent would be making thirteen mortgage payments a year instead of twelve. By applying that extra payment directly to the loan balance as a principal reduction, your loan amortizes more quickly, requiring fewer payments. You save money. The ads are true.<h2> How it Actually Works:</h2>You cannot simply mail in half a payment every two weeks to your mortgage lender. Since they do not accept partial payments for legal and accounting reasons, the mortgage company would just mail your half-payment back to you. Instead, the biweekly mortgage company is an intermediary between you and your mortgage lender. They automatically debit your checking account every two weeks for half of your mortgage payment then place your funds into a trust account. Basically, this is just a holding account for your money. In another two weeks, there is another automatic deduction from your checking account, and so on. When your mortgage payment is due, your funds are withdrawn from the trust account and forwarded to your mortgage lender. Since you are placing funds into the trust account faster than your mortgage payments are due, you eventually accumulate enough money to make an extra payment. The way the cycle works, this occurs once a year. he extra payment is applied directly to your principal balance, which causes your loan to amortize faster, pay off more quickly and save you thousands of dollars.<h2> Potential Problems with the Trust Account</h2>Because your funds are held in the trust account until your mortgage payment is due, there are potential dangers. Not only are your funds held in this account, but so are the funds of everyone else enrolled in the biweekly program. That is a lot of money. Most likely, there will be no problems. However, if there are accounting errors, mismanagement, or even fraud, your mortgage payment might not get made. The first hint of a problem will probably be a phone call or letter from your mortgage lender, but not until after your payment is already late. Since responsibility for making the payment rests with you and not the biweekly payment company, you may find yourself digging into your personal savings to make the payment directly -- even though the biweekly payment company has already collected your funds. Later you can work out the trust account problem with your biweekly payment company.<h2> The Cost of the Biweekly Mortgage</h2>There is usually a set-up fee that runs between $195 and $350, depending on how much sales commission is paid to the individual or company setting up the account for you. You also pay a transaction fee each time there is an automatic deduction from your checking account and sometimes also when the payment is made to your mortgage lender. There may also be a periodic maintenance fee. Meanwhile, whoever controls the trust account is earning interest on your money.<h2> Savings of the Biweekly Mortgage</h2>By making principal reductions using the biweekly mortgage program, your mortgage will amortize more quickly, saving you money. How quickly your loan pays off depends on your interest rate and when you begin making the biweekly payments. On a $100,000 loan at an interest rate of eight percent, your first principal reduction would probably be a year from now. Assuming the principal reduction is equal to one monthly payment ($733.76), you would save $43,852 over the life of the loan and pay it off almost seven years early. However, you have to deduct from those savings any amounts you paid in set-up, transaction, and maintenance fees.<h2> No-Cost Alternatives to the Biweekly Mortgage</h2>Instead of hiring a company to manage your biweekly payment, you could accomplish essentially the same thing on your own for free. Just take your monthly payment, divide it by twelve, and add that amount to your monthly mortgage payment. Be sure to earmark it as a principal reduction. The first way you save is that you do not have to pay any fees to anyone. It’s free. In addition to not paying fees -- using the same example as above -- your total savings on the mortgage would be $45,904. Plus the loan would be paid off three months quicker than with the biweekly mortgage. The reason you save more is because you are making a principal reduction each month, instead of waiting for funds to accumulate so that you can make one principal reduction a year.<h2> Self-Discipline?</h2>The biweekly mortgage companies claim that homeowners are not disciplined enough to follow through with principal reduction plans on their own. They suggest the reason for setting up the biweekly mortgage enforces discipline upon you, and by doing so, they save you money. However, in this technologically advanced age, banking online and automatic deductions are readily available. You can set up your own automatic deductions including the additional principal reduction and have it go directly to your mortgage lender. Since the deduction occurs automatically, just like with the biweekly mortgages, self-discipline is not a problem. Once again, you don’t have to pay anyone to do it for you and you save even more money.<h2> Conclusion</h2>The biweekly mortgage plans do not really do anything except move your money around and charge you for it. Plus, even though the danger is negligible, you must trust someone else to hold your money for you. If you can do the very same thing for free, plus save yourself even more money by doing it on your own, why pay someone else? The biweekly mortgage plan - who needs it? If your goal is principal reduction and saving money, then it is a good plan. If you do it on your own instead of paying someone else to do it for you, then it is a great plan.

The Biweekly Mortgage - Who Needs It?

In the olden days, when someone wanted a home loan they walked downtown to the neighborhood bank or savings &amp; loan. If the bank had extra funds lying around and considered you a good credit risk, they would lend you the money from their own funds. It doesn’t generally work like that anymore. Most of the money for home loans comes from three major institutions: • Fannie Mae (FNMA - Federal National Mortgage Association) • Freddie Mac (FHLMC - Federal Home Loan Mortgage Corporation) • Ginnie Mae (GNMA - Government National Mortgage Association)<h2> This is how it works:</h2> You talk to practically any lender and apply for a loan. They do all the processing and verifications and finally, you own the house with a home loan and regular mortgage payments. You might be making payments to the company who originated your loan, or your loan might have been transferred to another institution. The institution where you mail your payments is called the servicer, but most likely they do not own your loan. They are simply servicing your loan for the institution that does own it. What happens behind the scenes is that your loan got packaged into a pool with a lot of other loans and sold off to one of the three institutions listed above. The servicer of your loan gets a monthly fee from the investor for servicing your loan. This fee is usually only 3/8ths of a percent or so, but the amount adds up. There are companies that service over a billion dollars of home loans and it is a tidy income. At the same time, whichever institution packaged your loan into the pool for Fannie Mae, Freddie Mac, or Ginnie Mae, has received additional funds with which to make more loans to other borrowers. This is the cycle that allows institutions to lend you money. What Freddie Mac, Ginnie Mae, and Fannie Mae may do after they purchase the pools is break them down into smaller increments of $1,000 or so, called mortgage-backed securities. They sell these mortgage-backed securities to individuals or institutions on Wall Street. If you have a 401K or mutual fund, you may even own some. Perhaps you have heard of Ginnie Mae bonds? Those are securities backed by the mortgages on FHA and VA loans. These bonds are not ownership in your loan specifically, but a piece of ownership in the entire pool of loans, of which your loan is only one among many. By selling the bonds, Ginnie Mae, Freddie Mac, and Fannie Mae obtain new funds to buy new pools so lenders can get more money to lend to new borrowers. And that is how the cycle works. So when you make your payment, the servicer gets to keep their tiny part and the majority is passed on to the investor. Then the investor passes on the majority of it to the individual or institutional investor in the mortgage backed securities. From time to time your loan may be transferred from the company where you have been making your payment to another company. They aren’t selling your loan again, just the right to service your loan.<h2> There are exceptions.</h2>Loans above $333,700 do not conform to Fannie Mae and Freddie Mac guidelines, which is why they are called non-conforming loans, or “jumbo” loans. These loans are packaged into different pools and sold to different investors, not Freddie Mac or Fannie Mae. Then they are securitized and for the most part, sold as mortgage backed securities as well. This buying and selling of mortgages and mortgage-backed securities is called mortgage banking, and it is the backbone of the mortgage business.

Where Does the Money Come From for Mortgage Loans?

Title Insurance.
 
 It’s a term we hear and see frequently - we see reference to it in the Sunday real estate section, in advertisements and in conversations with real estate brokers. If you’ve purchased a home before, you’re probably familiar with the benefits and procedures of title insurance. But if this is your first home, you may wonder, “Why do I need another insurance policy? It’s just one more bill to pay.”
 
 The answer is simple: The purchase of a home is most likely one of the most expensive and important purchases you will ever make. You, and your mortgage lender, want to make sure that the property is indeed yours - lock, stock and barrel - and that no individual or government entity has any right, lien, claim to your property.
 
 Title insurance companies are in business to make sure your rights and interests to the property are clear, that transfer of title takes place efficiently and correctly and that your interests as a homebuyer are protected to the maximum degree.
 
 Title insurance companies provide services to buyers, sellers, real estate developers, builders, mortgage lenders and others who have an interest in a real estate transfer. Title companies routinely issue two types of policies - “owner’s”, which cover you, the homebuyer; and “lender’s”, which covers the bank, savings and loan or other lending institution over the life of the loan. Both are issued at the time of purchase for a modest, one-time premium.
 
 Before issuing a policy, however, the title company performs an extensive search of relevant public records to determine if anyone other than you has an interest in the property. The search may be performed by title company personnel using either public records or more likely, information gathered, reorganized and indexed in the company’s title plant.
 
 With such a thorough examination of records, any title problems usually can be found and cleared up prior to your purchase of the property. Once a title policy is issued, if for some reason any claim which is covered under your title policy is ever filed against your property, the title company will pay the legal fee involved in defense of your rights, as well as any covered loss arising from a valid claim. That protection, which is in effect as long as you or your heirs own the property, is yours for a one-time premium paid at the time of purchase.
 
 The fact that title companies work to eliminate risks before they develop makes the title insurance decidedly different from other types of insurance you may have purchased. Most forms of insurance assume risks by providing financial protection through a pooling of risks for losses arising from an unforeseen event, say a fire, theft or accident. The purpose of title insurance, on the other hand, is to eliminate risks and prevent losses caused by defects in title that happened in the past. Risks are examined and mitigated before property changes hands.
 
 This risk elimination has benefits to both you, the homebuyer, and the title company: it minimizes the chances adverse claims might be raised, and by so doing reduces the number of claims that have to be defended or satisfied. This keeps costs down for the title company and your title premiums low.
 
 Buying a home is a big step emotionally and financially. With title insurance you are assured that any valid claim against your property will be borne by the title company, and that the odds of a claim being filed are slim indeed.
 
 Isn’t sleeping well at night, knowing your home is yours, reason enough for title insurance?
 
 Article by CLTA

Why Do You Need Title Insurance?

Buying or selling a home (or other piece of real property) usually involves the transfer of large sums of money. It is imperative that the transfer of these funds and related documents from one party to another be handled in a neutral, secure and knowledgeable manner. For the protection of buyer, seller and lender, the escrow process was developed. As a buyer or seller, you want to be certain all conditions of sale have been met before property and money change hands. The technical definition of an escrow is a transaction where one party engaged in the sale, transfer or lease of real or personal property with another person delivers a written instrument, money or other items of value to a neutral third person, called an escrow agent or escrow holder. This third person holds the money or items for disbursement upon the happening of a specified event or the performance of a specified condition. Simply stated, the escrow holder impartially carries out the written instructions given by the principals. This includes receiving funds and documents necessary to comply with those instructions, completing or obtaining required forms and handling final delivery of all items to the proper parties upon the successful completion of the escrow. The escrow must be provided with the necessary information to close the transaction. This may include loan documents, tax statements, fire and other insurance policies, title insurance policies, terms of sale and any seller-assisted financing, and requests for payment for various services to be paid out of escrow funds. If the transaction is dependent on arranging new financing, it is the buyer’s or the buyer’s agent’s responsibility to make the necessary arrangements. Documentation of the new loan agreement must be in the hands of the escrow holder before the transfer of property can take place. A real estate agent can help identify appropriate lending institutions. When all the instructions in the escrow have been carried out, the closing can take place. At this time, all outstanding funds are collected and fees- such as title insurance premiums, real estate commissions, termite inspection charges- are paid. Title to the property is then transferred under the terms of the escrow instructions and appropriate title insurance is issued. Payment of funds at the close of escrow should be in the form acceptable to the escrow, since out-of-town and personal checks can cause days of delay in processing the transaction. The following items represent a typical list of what an escrow holder does and does not do:<h2> THE ESCROW HOLDER:</h2>• serves as the neutral “stakeholder” and the communications link to all parties in the transaction; • prepares escrow instructions; • requests a preliminary title search to determine the present condition of title to the property; • requests a beneficiary’s statement if debt or obligation is to be taken over by the buyer; • complies with lender’s requirements, specified in the escrow agreement; • receives purchase funds from the buyer; • prepares or secures the deed or other documents related to escrow; • prorates taxes, interest, insurance and rents according to instructions; • secures releases of all contingencies or other conditions as imposed on any particular escrow; • records deeds and any other documents as instructed; • requests issuance of the title insurance policy; • closes escrow when all the instructions of buyer and seller have been carried out; • disburses funds as authorized by instructions, including charges for title insurance, recording fees, real estate commissions and loan payoffs; • prepares final statements for the parties accounting for the disposition of all funds deposited in escrow (these are useful in the preparation of tax returns).<h2> THE ESCROW HOLDER DOES NOT:</h2>• offer legal advice; • negotiate the transaction; • offer investment advice. Your local title company should be happy to provide additional information. Article by CLTA ​

The Functions of an Escrow

Sellers of real property will have certain information regarding the sale reported to the Internal Revenue Service. This required reporting is a consequence of the Tax Reform Act of 1986; it is intended to encourage taxpayer compliance and aid in audit and enforcement efforts by the I.R.S. To help you better understand this subject, the Land Title Association has answered some of the questions most commonly asked about Required Reporting to the I.R.S.<h2> Who is required to report to the I.R.S.?</h2>Sellers of real property, under guidelines established by the I.R.S., are required to have their gross proceeds from the sale reported on a Form 1099S. When a settlement agent is used, the I.R.S. makes this agent responsible for the delivery of the information on the Form 1099S. The settlement agent generally will be the escrow agent or title company; however, it may be an attorney, real estate broker or other person providing settlement services.<h2> What is an I.R.S. Form 1099S, and what will be reported?</h2>The Form 1099S is the reporting form adopted by the I.R.S. for submitting the information required by law. The information will be transferred onto magnetic media by the settlement agent who will store the information and make the required report to the I.R.S. The settlement agent is also responsible for keeping a master copy of all transactions reported. In general, information required by the I.R.S. falls into the following categories: 1. The name, address and taxpayer ID number (social security or tax identification number) of the seller(s) 2. A general description of the property (in most cases an address) 3. The closing date of the transaction 4. The gross proceeds of the transaction (even though gross proceeds do not correspond to taxable income) 5. Any property involved as part of the transaction other than cash or cash equivalent 6. The name, address and taxpayer identification number of the settlement agent. 7. Real estate tax paid in advance that is allocable to the buyer.<h2> On what type of transactions is a Form 1099S required?</h2>Currently, typical homeowner transactions covered include sales and exchanges of 1-4 family residential properties such as houses, townhouses, and condominiums. Also reportable are sales or exchanges of improved or unimproved land, commercial or industrial buildings, condominiums, stock in a cooperative housing corporation and mobile homes (manufactured homes) affixed to real property. Specifically excluded from reporting are foreclosures and abandonment of real property and financing or refinancing of properties.<h2> What happens if the seller(s) refuses to provide the taxpayer identification number for the Form 1099S?</h2>The settlement agent is required to request the transferor’s taxpayer identification number(s) (TIN(s)) before the time of closing. You may request a TIN on Form W-9 or use an alternative written request. The IRS has included sample wording of an alternative written request in the instructions for preparation of Form 1099S. Should the seller fail to provide the identification number and certify its correctness, the settlement agent may choose to: 1. Delay the closing of the transactions until the information is furnished, or 2. Complete the transaction and report to the I.R.S. that an attempt was made to obtain the information from the seller.<h2> How is the sale reported when there is more than one seller involved or when multiple sellers do not own equal interests in the property?</h2>Multiple sellers may allocate the gross proceeds among themselves for purposes of reporting. If there is no allocation, an incomplete allocation or conflicting allocations, then the entire gross proceeds will be reported for each seller.<h2> Where can I go for further information on taxation of real property?</h2>The I.R.S. provides free publications that explain the tax aspects of real estate transactions. You may wish to order: Publication #523 “Tax Information on Selling Your Home” Publication #530 “Tax Information for Home Owners” Publication #544 “Sales and Other Dispositions of Assets” Publication #551 “Basis of Assets” To place your order, phone toll-free (800) 829-3676. Article by CLTA

Required Reporting to the I.R.S.

After months of searching, you’ve finally found it -- your perfect dream home. But is it perfect? Will you be purchasing more than just a beautiful home? Will you also be acquiring liens placed on the property by prior owners? Have documents been recorded that will restrict your use of the property? The preliminary report will provide you with the opportunity, prior to purchase, to review matters affecting your property which will be excluded from coverage under your title insurance policy unless removed or eliminated before your purchase. To help you better understand this often bewildering subject, the Land Title Association has answered some of the questions most commonly asked about preliminary reports.<h2> What is a Preliminary Report?</h2>A preliminary report is a report prepared prior to issuing a policy of title insurance that shows the ownership of a specific parcel of land, together with the liens and encumbrances thereon which will not be covered under a subsequent title insurance policy.<h2> What role does a Preliminary Report play in the real estate process?</h2>A preliminary report contains the conditions under which the title company will issue a particular type of title insurance policy. The preliminary report lists, in advance of purchase, title defects, liens and encumbrances which would be excluded from coverage if the requested title insurance policy were to be issued as of the date of the preliminary report. The report may then be reviewed and discussed by the parties to a real estate transaction and their agents. Thus, a preliminary report provides the opportunity to seek the removal of items referenced in the report which are objectionable to the buyer prior to purchase.<h2> When and how is the Preliminary Report produced?</h2>Shortly after escrow is opened, an order will be placed with the title company which will then begin the process involved in producing the report. This process calls for the assembly and review of certain recorded matters relative to both the property and the parties to the transaction. Examples of recorded matters include a deed of trust recorded against the property or a lien recorded against the buyer or seller for an unpaid court award or unpaid taxes. These recorded matters are listed numerically as “exceptions” in the preliminary report. They will remain exceptions from title insurance coverage unless eliminated or released prior to the transfer of title.<h2> What should I look for when reading my Preliminary Report?</h2>You will be interested, primarily, in the extent of your ownership rights. This means you will want to review the ownership interest in the property you will be buying as well as any claims, restrictions or interests of other people involving the property. The report will note in a statement of vesting the degree, quantity, nature and extent of the owner’s interest in the real property. The most common form of interest is “fee simple” or “fee” which is the highest type of interest an owner can have in land. Liens, restrictions and interests of others which are being excluded from coverage will be listed numerically as exceptions in the preliminary report. These may be claims by creditors who have liens or liens for payment of taxes or assessments. There may also be recorded restrictions which have been placed in a prior deed or contained in what are termed CC&amp;Rs- covenants, conditions and restrictions. Finally, interests of third parties are not uncommon and may include easements given by a prior owner which limit your use of the property. When you buy property you may not wish to have these claims or restrictions on your property. Instead, you may want to clear the unwanted items prior to purchase. In addition to the limitations noted above, a printed list of standard exceptions and exclusions listing items not covered by your title insurance policy may be attached as an exhibit item to your report. Unlike the numbered exclusions, which are specific to the property you are buying, these are standard exceptions and exclusions appearing in title insurance policies. The review of this section is important, as it sets forth matters which will not be covered under your title insurance policy, but which you may wish to investigate, such as governmental laws or regulations governing building and zoning.<h2> Will the Preliminary Report disclose the complete condition of the title to a property?</h2>No. It is important to note that the preliminary report is not a written representation as to the condition of title and may not list all liens, defects, and encumbrances affecting title to the land, but merely report the current ownership and matters that the title company will exclude from coverage if a title insurance policy should later be issued.<h2> Is a Preliminary Report the same thing as title insurance?</h2>Definitely not. A preliminary report is an offer to insure, it is not a report of a complete history of recorded documents relating to the property. A preliminary report is a statement of terms and conditions of the offer to issue a title insurance policy, not a representation as to the condition of title. These distinctions are important for the following reasons: first, no contract or liability exists until the title insurance policy is issued; second, the title insurance policy is issued to a particular insured person and others cannot claim the benefit of the policy.<h2> Can I be protected against title risks prior to the close of the real estate transaction?</h2>Yes, you can. Title companies can protect your interest through the issuance of “binders” and “commitments”. A binder is an agreement to issue insurance giving temporary coverage until such time as a formal policy is issued. A commitment is a title insurer’s contractual obligation to insure title to real property once its stated requirements have been met. Discuss with your title insurer the best means to protect your interests.<h2> How do I go about clearing unwanted liens and encumbrances?</h2>You will wish to carefully review the preliminary report. Should the title to the property be clouded, you and your agents will work with the seller and the seller’s agents to clear the unwanted liens and encumbrances prior to taking title.<h2> Who can I turn to for further information regarding Preliminary Reports?</h2>Your real estate agent and your attorney, should you choose to use one, will help explain the preliminary report to you. Your escrow and title company can also be helpful sources.<h2> CONCLUSION</h2>In a business which is directed at risk elimination, the efforts leading to the production of the preliminary report, which is designed to facilitate the issuance of a policy of title insurance, is perhaps the most important function undertaken. Article by CLTA

Understanding Preliminary Reports

<h2>What’s in a name?</h2>When a title company seeks to uncover matters affecting title to real property, the answer is, “Quite a bit.” Statements of Information provide title companies with the information they need to distinguish the buyers and sellers of real property from others with similar names. After identifying the true buyers and sellers, title companies may disregard the judgments, liens or other matters on the public records under similar names. To help you better understand this sensitive subject, the Land Title Association has answered some of the questions most commonly asked about Statements of Information.<h2> What is a Statement of Information?</h2>A Statement of Information is a form routinely requested from the buyer, seller and borrower in a transaction where title insurance is sought. The completed form provides the title company with information needed to adequately examine documents so as to disregard matters which do not affect the property to be insured, matters which actually apply to some other person.<h2> What does a Statement of Information do?</h2>Every day documents affecting real property--liens, court decrees, bankruptcies--are recorded. Whenever a title company uncovers a recorded document in which the name is the same or similar to that of the buyer, seller or borrower in a title transaction, the title company must ask, “Does this document affect the parties we are insuring?” Because, if it does, it affects title to the property and would, therefore, be listed as an exception from coverage under the title policy. A properly completed Statement of Information will allow the title company to differentiate between parties with the same or similar names when searching documents recorded by name. This protects all parties involved and allows the title company to competently carry out its duties without unnecessary delay.<h2> What types of information are requested in a Statement of Information?</h2>The information requested is personal in nature, but not unnecessarily so. The information requested is essential to avoid delays in closing the transaction. You, and your spouse if you are married, will be asked to provide full name, social security number, year of birth, birthplace, and information or citizenship. If you are married, you will be asked the date and place of your marriage or registered domestic partnership. Residence and employment information will be requested, as will information regarding previous marriages or registered domestic partnerships.<h2> Will the information I supply be kept confidential?</h2>The information you supply is completely confidential and only for title company use in completing the search of records necessary before a policy of title insurance can be issued.<h2> What happens if a buyer, seller or borrower fails to provide the requested Statement of Information?</h2>At best, failure to provide the requested Statement of Information will hinder the search and examination capabilities of the title company, causing delay in the production of your title policy. At worst, failure to provide the information requested could prohibit the close of your escrow. Without a Statement of Information, it would be necessary for the title company to list as exceptions from coverage judgments, liens or other matters which may affect the property to be insured. Such exceptions would be unacceptable to most lenders, whose interest must also be insured.<h2> Conclusion</h2>Title companies make every attempt in issuing a policy of title insurance to identify known risks affecting your property and to efficiently and correctly transfer title so as to protect your interests as a homebuyer. By properly completing a Statement of Information, you allow the title company to provide the service you need with the assurance of confidentiality. Article by CLTA

Statements of Information

Creative financing: You’ve heard of it, and, as a seller, the idea sounds pretty attractive. But, do you know everything you need to know about carrying back a second; essentially, about becoming a lender? You better know the same things that financial institutions know - you better know about lender’s title insurance. It’s time to sell your $150,000 home, a home that you have owned for fifteen years, a home in which you have substantial equity. The loan terms call for a $20,000 down payment from your buyer, a new $100,000 loan from a local savings and loan, and for you, the seller, to carry back a note for the remaining $30,000. Will you, the seller, need title insurance? Yes, you will. Everyone who retains an interest in the property needs title insurance. When you took on the role of lender, you retained a record title interest which you will want to protect for the term of the loan. But, why would you need lender’s title insurance when the repayment of your loan is assured by a lien in the form of a recorded deed of trust against the property? What could possibly go wrong? You must insure yourself for the same reason that financial institutions obtain title insurance - for the protection of your investment. You must be assured that your lien on the property cannot be defeated by a prior lien or other interest in the property, which, if exercised, would wipe out your security. Anything that involves the new buyer’s ownership rights to the property is of direct interest to you because you are holding the second mortgage. If such ownership rights are in question or defective, you may have trouble collecting your monthly mortgage payments. But, you say, there is nothing in your property’s history that could cause problems: no problems with easements, no problems with boundaries, no problems with rights-of-way. Contrary to what may be popular belief, these matters are not the only source of title problems; a large proportion of title problems arise out of man’s interaction with man. The fact of a marriage, a divorce, a death, a forgery, a judgment for money damages, a failure to pay state or federal taxes - these occurrences can and usually will affect your rights as a mortgage lender. As an example of what can befall the lender, did you know that a federal tax lien recorded against your buyer before the loan transaction is concluded may result in the loss of security in your home? Sophisticated mortgage lenders are aware of this possibility as well as many others which could jeopardize their loan security and seek the protection afforded by a lender’s title insurance policy. If you are considering carrying back a second, be sure to get all the facts regarding the benefits of lender’s title insurance. Your local title insurance company should be happy to provide the information you need. Article by CLTA

Creative Financing

What is title insurance? Newspapers refer to it in the weekly real estate sections and you hear about it in conversations with real estate brokers. If you’ve purchased a home you may be familiar with the benefits of title insurance. However, if this is your first home, you may wonder, “Why do I need yet another insurance policy?” While a number of issues can be raised by that question, we will start with a general answer. The purchase of a home is one of the most expensive and important purchases you will ever make. You and your mortgage lender will want to make sure the property is indeed yours and that no one else has any lien, claim or encumbrance on your property. The Land Title Association, in the following pages, answers some questions frequently asked about an often misunderstood line of insurance - title insurance.<h2> What is the difference between title insurance and casualty insurance?</h2>Title insurers work to identify and eliminate risk before issuing a title insurance policy. Casualty insurers assume risks. Casualty insurance companies realize that a certain number of losses will occur each year in a given category (auto, fire, etc.). The insurers collect premiums monthly or annually from the policy holders to establish reserve funds in order to pay for expected losses. Title companies work in a very different manner. Title insurance will indemnify you against loss under the terms of your policy, but title companies work in advance of issuing your policy to identify and eliminate potential risks and therefore prevent losses caused by title defects that may have been created in the past. Title insurance also differs from casualty insurance in that the greatest part of the title insurance premium dollar goes towards risk elimination. Title companies maintain title plants, which contain information regarding property transfers and liens reaching back many years. Maintaining these title plants, along with the searching and examining of title, is where most of your premium dollar goes.<h2> Who needs title insurance?</h2>Buyers and lenders in real estate transactions need title insurance. Both want to know that the property they are involved with is insured against certain title defects. Title companies provide this needed insurance coverage subject to the terms of the policy. The seller, buyer and lender all benefit from the insurance provided by title companies.<h2> What does title insurance insure?</h2>Title insurance offers protection against claims resulting from various defects (as set out in the policy) which may exist in the title to a specific parcel of real property, effective on the issue date of the policy. For example, a person might claim to have a deed or lease giving them ownership or the right to possess your property. Another person could claim to hold an easement giving them a right of access across your land. Yet another person may claim that they have a lien on your property securing the repayment of a debt. That property may be an empty lot or it may hold a 50-story office tower. Title companies work with all types of real property.<h2> What types of policies are available?</h2>Title companies routinely issue two types of policies: An “owner’s policy” which insures you, the Homebuyer, for as long as you and your heirs own the home; and a “lender’s” policy which insures the priority of the lender’s security interest over the claims that others may have in the property.<h2> What protection am I obtaining with my title policy?</h2>A title insurance policy contains provisions for the payment of the legal fees in defense of a claim against your property which is covered under your policy. It also contains provisions for indemnification against losses which result from a covered claim. A premium is paid at the close of a transaction. There are no continuing premiums due, as there are with other types of insurance. <h2>What are my chances of ever using my title policy?</h2>In essence, by acquiring your policy, you derive the important knowledge that recorded matters have been searched and examined so that title insurance covering your property can be issued. Because we are risk eliminators, the probability of exercising your right to make a claim is very low. However, claims against your property may not be valid, making the continuous protection of the policy all the more important. When a title company provides a legal defense against claims covered by your title insurance policy, the savings to you for that legal defense alone will greatly exceed the one-time premium.<h2> What if I am buying property from someone I know?</h2>You may not know the owner as well as you think you do. People undergo changes in their personal lives that may affect title to their property. People get divorced, change their wills, engage in transactions that limit the use of the property and have liens and judgments placed against them personally for various reasons. There may also be matters affecting the property that are not obvious or known, even by the existing owner, which a title search and examination seeks to uncover as part of the process leading up to the issuance of the title insurance policy. Just as you wouldn’t make an investment based on a phone call, you shouldn’t buy real property without assurances as to your title. Title insurance provides these assurances. The process of risk identification and elimination performed by the title companies, prior to the issuance of a title policy, benefits all parties in the property transaction. It minimizes the chances that adverse claims might be raised, and by doing so reduces the number of claims that need to be defended or satisfied. This process keeps costs and expenses down for the title company and maintains the traditional low cost of title insurance. Article by CLTA

Understanding Title Insurance

Title Insurance: As a homebuyer, the term is probably familiar - but is it understood? What is your dollar actually paying for when you purchase a title policy?
 
 Title Insurers, unlike property or casualty insurance companies, operate under the theory of risk elimination. Title companies spend a high percentage of their operating income each year collecting, storing, maintaining and analyzing official records for information that affects title to real property. Their technical experts are trained to identify the rights others may have in your property, such as recorded liens, legal actions, disputed interests, rights of way or other encumbrances on your title. Before closing your transaction, the title company will proceed to clear those encumbrances which you do not wish to assume.
 
 This theory is different from that of most other insurance where, for example, rates and anticipated losses are based on actuarial studies and premiums are pooled on the assumption that a certain number of claims will be made. The distinction is important: title insurance premiums are paid to identify and eliminate potential risks and claims before they happen. Medical and casualty insurance premiums, for example, are paid to insure against an unpredictable future event, knowing that risks exist and claims will occur. Furthermore, title insurance involves a one-time premium, paid when you close the real estate transaction, while property, casualty and medical insurance require regular renewal premiums.
 
 The goal of title companies is to conduct such a thorough search and evaluation of public records that no claims will ever arise. Of course, this is impossible -- we live in an imperfect world, where human error and changing legal interpretations make 100% risk elimination impossible. When claims arise, professional claims personnel are assigned to handle them according to the terms of the title insurance policy.
 
 As in all competitive business environments, rates vary from company to company, so you should make comparisons before deciding on a particular title company. Your real estate professional can help you do this. In addition, there are many helpful customer services provided by title companies which you and your real estate professional may find helpful to your transaction.
 
 The issuance of a title insurance policy is highly labor-intensive. It is based upon the maintenance of a title plant, or library of title records, in many cases dating back over a hundred years. Each day, recorded documents affecting real property and property owners are posted to these title plants so that when a title search on a particular parcel is requested, the information is already organized for rapid and accurate retrieval. This investment in skilled personnel and advanced data processing represents a major part of the title insurance premium dollar.
 
 Article by CLTA

Title Insurance - Where Does Your Dollar Go?

In today’s world of busy probate courts and exorbitant death taxes, the living trust has become a common manner of holding title to real property. The following may help you understand a few of the requirements of the title insurance industry if title to property is conveyed to the trustee of a living trust.<h2>
 What is a trust?</h2>An agreement between a trustor and trustee for the trustee to hold title to and administer designated assets of the trustor for the use and benefit of one or more beneficiaries.<h2>
 Can a trust itself acquire and convey interests in real property?</h2>No. The trust is an arrangement between a trustee and the trustor. Only the trustee, on behalf of the trust, may own and convey any interest in real property. The trustee may only exercise the powers granted in the trust.<h2>
 What will the title company require if a trustee holds the title to the property which is part of the trust?</h2>A certification of trust containing the following information:
 
 1. Date of execution of the trust instrument,
 2. Identity of the trustor and trustee,
 3. Powers of the trustee,
 4. Identity of person with power to revoke trust, if any,
 5. Signature authority of the trustees,
 6. Manner in which title to the trust assets should be taken,
 7. Legal description of any interest in the property held by the trust, and
 8. A statement that the trust has not been revoked, modified, or amended in any manner which would cause the certification to be incorrect and that the certification is being signed by all currently acting trustees of the trust<h2>
 My trust contains certain amounts of money to be given to various charities which is none of your business. Can I omit these pages?</h2>Because many different provisions may be on the same page, the answer must be no -- but if the title company requires a copy of the trust, it may accept a copy with those amounts blacked out.<h2>
 If there is more than one trustee, can just one sign?</h2>Maybe. The trust must specifically provide for less than all to sign.<h2>
 Can the trustee give someone a power-of-attorney?</h2>Only if the trust specifically provides for the appointment of an attorney-in-fact.<h2>
 What will the title company require if all the trustees have died or are unwilling to act?</h2>If the trustor is not able to do so, or the trust provisions prohibit the trustor from appointing a new trustee, the court may do so.<h2>
 How does a notary acknowledge the signature of the trustee?</h2>Title is vested in the trustee. Hence, if the trustee is an individual or a corporation, then the new general form of acknowledgment will be prepared to reflect the intrinsic nature of the trustee.<h2>
 How would the deed to the trustee ordinarily be worded to transfer title to the trustee?</h2>“John Doe and Mary Doe, as trustees of the Doe family trust, under declaration of trust dated January 1,1992.”<h2>
 Are there any limitations on what a trustee may do?</h2>Yes, the trustee is limited principally and most importantly by the provisions of the trust and, thus, may only act within the terms of the trust. The probate code contains general powers which, unless limited by the trust agreement, are sufficient for title insurers to rely on for sale, conveyance, and refinance purposes.
 
 Article by CLTA

Title Insurance Requirements for Insuring Trusts

Lower interest rates have motivated you to refinance your home loan. The lower rate may save you a tremendous amount of money over the life of the loan, but you should also expect to pay the lender the typical closing costs associated with any new loan, including service fees, points, title insurance protection and other expenses.<h2> Why do I need to purchase a new title insurance policy on a refinanced loan?</h2>To the lender, a refinance loan is no different than any other home loan. So, your lender will want to insure that their new loan is protected by title insurance, just as the original lender required. Therefore, when you refinance you are buying a title policy to protect your lender.<h2> Why does a Lender need title insurance?</h2>Most lenders generate loans and then immediately sell those loans to secondary market investors, such as FannieMae. FannieMae, in order to protect its security interest in the loan, requires title insurance coverage. Even those lenders who keep original loans in their portfolio are wise to get a lenders policy to protect their investment against title related defects.<h2> When I purchased my home, didn’t I also buy a lender’s policy?</h2>Perhaps. Who pays for the lender’s policy on a purchase loan varies regionally and by the terms of individual contracts. However, even if you did buy a lender’s policy when you purchased your home, the lender’s policy remains in force only during the life of the loan that was insured. If you refinance, the old loan is paid off (the “life” of the loan expires) and a new loan is issued for which the lender will require a new title insurance policy.<h2> What about my original title insurance policy?</h2>When you bought your home, you purchased a Homeowners title policy. The Homeowners’ policy stays in force as long as you or your heirs own the home. When you refinance, your lender will often require that you purchase a new lender’s policy to protect their new security interest in the property. Thus, you are buying a policy to protect your lender, not a new Homeowner’s policy.<h2> What could possibly have happened since I purchased my home which warrants a new lender’s policy?</h2>Since the time that the original loan was made, you may have taken out a second trust deed on the house or had mechanic’s liens, child support liens or legal judgments recorded against you - events that could result in serious financial losses to an unprotected lender. Regardless if it has been only 6 months or less since you purchased or refinanced your home, a myriad of title defects could have occurred. While you may not have any title defects, many Homeowners do. The only way for a lender to adequately protect itself is to get a new lender’s policy each time you purchase or refinance your home.<h2> Are there any discounts available for title insurance on a refinance transaction?</h2>Yes. Title companies offer a refinance transaction discount or a short-term rate. Discounts may also be available if you use the same lender for your refinance loan and your original loan. Be sure to ask your title company how they can save you money. Article by CLTA

Title Insurance When Refinancing Your Loan

It is an unfortunate commentary, but when economic activity declines and housing activity decreases, more real property enters the foreclosure process. High interest rates and creative financing arrangements are also contributing factors.
 
 When prices are rapidly accelerating during a real estate “bonanza”, many people go to any lengths available to get into the market through investments in vacation homes, rental housing and trading up to more expensive properties. In some cases, this results in the taking on of high interest rate payments and second, third and even fourth deeds of trust. Many buyers anticipate that interest rates will drop and home prices will continue to escalate. It is possible that neither will occur and borrowers may be faced with large balloon payments becoming due. When payments cannot be met, the foreclosure process looms on the horizon.
 
 In the foreclosure process, one thing should be kept in mind: as a general rule, a lender would rather receive payments than receive a home due to a foreclosure. Lenders are not in the business of selling real estate and will often try to accommodate property owners who are having payment problems. The best plan is to contact the lender before payment problems arise. If monthly payments are too hefty, it may be that a lender will be able to make some alternative payment arrangements until the owner’s financial situation improves.
 
 Let’s say, however, that a property owner has missed payments and has not made any alternate arrangements with the lender. In this case, the lender may decide to begin the foreclosure process. Under such circumstances, the lender, whether a bank, savings and loan or private party, will request that the trustee, often a title company, file a notice of default with the county recorder’s office. A copy of the notice is mailed to the property owner.
 
 If the default is due to a balloon payment not being made when due, the lender can require full payment on the entire outstanding loan as the only way to cure the default. If the default is not cured, the lender may direct the trustee to sell the property at a public sale.
 
 In cases of a public sale, a notice of sale must be published in a local newspaper and posted in a public place, usually the courthouse, for three consecutive weeks. Once the notice of sale has been recorded, the property owner has until 5 days prior to the published sale date to bring the loan current. If the owner cures the default by making up the payments, the deed of trust will be reinstated and regular monthly payments will continue as before.
 
 After this time, it may still be possible for the property owner to work out a postponement on the sale with the lender. However, if no postponement is reached, the property goes on the block. At the sale, buyers must pay the amount of their bid in cash, cashier’s check or other instrument acceptable to the trustee. A lender may “credit bid” up to the amount of the obligation being foreclosed upon.
 
 With the recent attention given to foreclosure, there also has been corresponding interest in buying foreclosed properties. However, caveat emptor: buyer beware. Foreclosed properties are very likely to be burdened with overdue taxes, liens and clouded titles. A buyer should do his homework and ask a local title company for information concerning these outstanding liens and encumbrances. Title insurance may or may not be available following a foreclosure sale and various exceptions may be included in any title insurance policy issued to a buyer of a foreclosed property.
 
 Your local title company will be happy to provide additional information.

Understanding Foreclosures

The Mechanics’ Lien law provides special protection to contractors, subcontractors, laborers and suppliers who furnish labor or materials to repair, remodel or build your home.
 
 If any of these people are not paid for the services or materials they have provided, your home may be subject to a mechanics’ lien and eventual sale in a legal proceeding to enforce the lien. This result can occur even when the homeowner has made full payment for the work of improvement.
 
 The mechanics’ lien is a right that a state gives to workers and suppliers to record a lien and ensure payment. This lien may be recorded where the property owner has paid the contractor in full and the contractor then fails to pay the subcontractors, suppliers, or laborers. Thus, in the worst case, a homeowner may actually end up paying twice for the same work.
 
 The theory is that the value of the property upon which the labor or materials have been bestowed has been increased by virtue of these efforts and the homeowner who has reaped this benefit is required in return to act as the ultimate guarantor of full payment to the persons responsible for this increase in value. In practice, a homeowner faced with a valid mechanics’ lien may be compelled to pay the lien claimant and then pursue conventional legal remedies against the contractor or subcontractor who initially failed to pay the lien claimant but who himself was paid by the homeowner. Another justification for this result relates to the relative financial strengths of the parties to a work of improvement. The law views the property owner as being in a better situation to absorb the financial setback occasioned by having to pay the amount of a valid mechanics’ lien, as opposed to a laborer or material man who is viewed as being less able to absorb the financial burdens occasioned by not being paid for services or materials provided in connection with a work of improvement.
 
 The best protection against these claims is for the homeowner to employ reputable firms with sufficient experience and capital and/or require completion and payment bonding of the construction work. The issuance of checks payable jointly to the contractor, material men and suppliers is another protective measure, as is the careful disbursement of funds in phases based upon the percentage of completion of the project at a given point in the construction process. The protection offered by mechanics’ lien releases can also be helpful.
 
 Even if a mechanics’ lien is recorded against your property you may be able to resolve the problem without further payment to the lien claimant. This possibility exists where the proper procedure for establishing the lien was not followed. While it is true that persons who have provided labor, services, or materials to a job site may record mechanics’ liens, each is required to strictly adhere to a well-established procedure in order to create a valid mechanics’ lien.
 
 Needless to say, this is one area of the law that is very complex, thus it may be worthwhile to consult an attorney if you become aware that a mechanics’ lien has been recorded against your property. In the event you discover that a lien has been recorded but no effort has been made to enforce the lien, a title company may decide to ignore the lien. However, be prepared to be presented with a positive plan to eliminate the title problems created by this type of lien. This may be accomplished by means of a recorded mechanics’ lien release from the person who created the lien, or other measures acceptable to the title company.
 
 As in all areas of the real estate field, the best advice is to investigate the quality, integrity, and business reputation of the firm with whom you are dealing. Once you are satisfied you are dealing with a reputable company and before you begin your construction project, discuss your concerns about possible mechanics’ lien problems and work out, in advance, a method of ensuring that they will not occur.

Mechanic's Liens

How Should I Take Ownership of the Property I am Buying? Real property can be incredibly valuable and the question of how parties can take ownership of their property is important. The form of ownership taken -- the vesting of title -- will determine who may sign various documents involving the property and future rights of the parties to the transaction. These rights involve such matters as: real property taxes, income taxes, inheritance and gift taxes, transferability of title and exposure to creditor’s claims. Also, how title is vested can have significant probate implications in the event of death. The Land Title Association (LTA) advises those purchasing real property to give careful consideration to the manner in which title will be held. Buyers may wish to consult legal counsel to determine the most advantageous form of ownership for their particular situation, especially in cases of multiple owners of a single property. The LTA has provided the following definitions of common vesting as an informational overview. Consumers should not rely on these as legal definitions. The Association urges real property purchasers to carefully consider their titling decision prior to closing, and to seek counsel should they be unfamiliar with the most suitable ownership choice for their particular situation. Common Methods of Holding Title<h2> SOLE OWNERSHIP</h2>Sole ownership may be described as ownership by an individual or other entity capable of acquiring title. Examples of common vesting in cases of sole ownership are: 1. A Single Man/Woman: A man or woman who has not been legally married. For example: Bruce Buyer, a single man. 2. An Unmarried Man/Woman: A man or woman who was previously married and is now legally divorced. For example: Sally Seller, an unmarried woman. 3. A Married Man/Woman as His/Her Sole and Separate Property: A married man or woman who wishes to acquire title in his or her name alone. The title company insuring title will require the spouse of the married man or woman acquiring title to specifically disclaim or relinquish his or her right, title and interest to the property. This establishes that it is the desire of both spouses that title to the property be granted to one spouse as that spouse’s sole and separate property. For example: Bruce Buyer, a married man, as his sole and separate property.<h2> CO-OWNERSHIP</h2>Title to property owned by two or more persons may be vested in the following forms: 1. Community Property: A form of vesting title to property owned by husband and wife during their marriage, which they intend to own together. Community property is distinguished from separate property, which is property acquired before marriage, by separate gift or bequest, after legal separation, or which is agreed to be owned only by one spouse. Real property conveyed to a married man or woman is presumed to be community property, unless otherwise stated. Since all such property is owned equally, husband and wife must sign all agreements and documents of transfer. Under community property, either spouse has the right to dispose of one half of the community property, including transfers by will. For example: Bruce Buyer and Barbara Buyer, husband and wife as community property. 2. Joint Tenancy A form of vesting title to property owned by two or more persons, who may or may not be married, in equal interest, subject to the right of survivorship in the surviving joint tenant(s). Title must have been acquired at the same time, by the same conveyance, and the document must expressly declare the intention to create a joint tenancy estate. When a joint tenant dies, title to the property is automatically conveyed by operation of law to the surviving joint tenant(s). Therefore, joint tenancy property is not subject to disposition by will. For example: Bruce Buyer and Barbara Buyer, husband and wife as joint tenants. 3. Tenancy in Common: A form of vesting title to property owned by any two or more individuals in undivided fractional interests. These fractional interests may be unequal in quantity or duration and may arise at different times. Each tenant in common owns a share of the property, is entitled to a comparable portion of the income from the property and must bear an equivalent share of expenses. Each co-tenant may sell, lease or will to his/her heir that share of the property belonging to him/her. For example: Bruce Buyer, a single man, as to an undivided 3/4 interest and Penny Purchaser, a single woman, as to an undivided 1/4 interest, as tenants in common. Other ways of vesting title include: 1. A Corporation*: A corporation is a legal entity, created under state law, consisting of one or more shareholders but regarded under law as having an existence and personality separate from such shareholders. 2. A Partnership*: A partnership is an association of two or more persons who can carry on business for profit as co-owners, as governed by the Uniform Partnership Act. A partnership may hold title to real property in the name of the partnership. 3. As Trustees of A Trust*: A trust is an arrangement whereby legal title to a property is transferred by the grantor to a person called a trustee, to be held and managed by that person for the benefit of the people specified in the trust agreement, called the beneficiaries. 4. Limited Liability Companies (L.L.C.) This form of ownership is a legal entity and is similar to both the corporation and the partnership. The operating agreement will determine how the L.L.C. functions and is taxed. Like the corporation its existence is separate from its owners. *In cases of corporate, partnership, L.L.C. or trust ownership - required documents may include corporate articles and bylaws, partnership agreements, L.L.C. operating agreement and trust agreements and/or certificates. Remember: How title is vested has important legal consequences. You may wish to consult an attorney to determine the most advantageous form of ownership for your particular situation.

Common Ways of Holding Title

Builders, in an effort to combat the dual problem of an increasing population and a declining availability of prime land, are increasingly turning to common interest developments (CIDs) as a means to maximize land use and offer homebuyers convenient, affordable housing. The two most common forms of common interest developments in many states are Condominiums and Planned Unit Developments, often referred to as PUDs. The essential characteristics shared by these two forms of ownership are: 1. Common ownership of private residential property 2. Mandatory membership of all owners in an association which controls use of the common property 3. Governing documents which establish the procedures for governing the association, the rules which the owners must follow in the use of their individual lots or units as well as the common properties 4. A means by which owners are assessed to finance the operation of the association and maintenance of the common properties Before continuing further, it may be helpful to clarify a common misconception about Condominiums and PUDs. The terms Condominium and PUD refer to types of interests in land, not to physical styles of dwellings. Therefore, when homebuyers say that they are buying a townhouse, it is not the same as saying that they are buying a condominium. When homebuyers say that they are buying a unit in a PUD, they are not necessarily buying a single-family detached home. A townhouse might legally be a condominium, a unit or lot in a Planned Unit Development, or a single-family detached residence. The terms Condominium or PUD will say a great deal about the ownership rights the buyer will receive in the unit and the interest they will acquire in the common properties or common areas of the development. Common interest developments offer many advantages to homebuyers, such as low maintenance and access to attractive amenities. However, there are restrictions and duties which come with ownership of a Condominium or PUD that buyers should be aware of prior to purchase. To acquaint you with various aspects of ownership in common interest developments, the Land Title Association has answered some of the questions most commonly asked about Condominiums and PUDs. What are the basic differences between ownership of a Condominium and ownership of a PUD? The owner(s) of a unit within a typical Condominium project owns 100% of the unit, as defined by a recorded Condominium Plan. As well, they will own a fractional or percentage interest in all common areas of the Condominium project. The owner(s) of a lot within a PUD owns the lot which has been conveyed to them-as shown in the recorded Tract Map or Parcel Map-and the structure and improvements thereon. In addition, they receive rights and easements to use in common areas owned by another-frequently a Homeowner’s association-of which the individual lot owners are members. The above are basic descriptions and should not be considered legal definitions. Besides ownership of my unit, what other amenities (common areas) will I be acquiring use of and how will I own them? Common interest areas may span the spectrum from the ordinary-buildings, roadways, walkways and utility rooms-to the extravagant-equestrian trails and golf courses-with more usual amenities including community swimming pools and clubhouse facilities. Your ownership rights in common areas will be spelled out in your project’s Declaration of Covenants, Conditions and Restrictions (CC and R’s). The subject of CC and R’s will be expanded upon later in this brochure. As we stated in the answer to the previous question, Condominium owners own a fractional or percentage interest in common with all other owners in the Condominium project, in all common areas. PUD owners receive rights and easements to use of common areas through their membership in a Homeowner’s association, which typically owns and controls the common areas. Some PUD projects, however, provide that the individual homeowners will own a fractional interest in the common areas. Again, in this case, a Homeowner’s association will have the right to regulate the use of the common areas and to assess for purposes of maintaining the common areas. Check your CC and R’s and association Bylaws (basically, rules governing the management of the development) to insure that you understand your rights to use of your unit and common areas. What services will my Homeowner’s assessments help to finance? Your Homeowner’s assessments support not only the easily recognizable-building and swimming pool upkeep, landscape maintenance-but also the unseen-association management and legal fees and association insurance. As well, reserves must be factored into your assessments, including reserves for replacement of such items as roadways and walkways. In the case of condominiums, where ownership is usually limited to airspace within the walls, floors and ceiling of the unit, reserves will frequently fund replacement of such items as roofs and plumbing. Each member of the Homeowner’s association, upon purchasing their unit, must receive a pro forma operating budget from the association. Basically, this will be a financial statement of the income and obligations of the association, which must include an estimate of the life of the obligations covered under the assessments and how their replacement is being funded. What happens if I fail to pay my Homeowner’s assessments? Delinquency fees will be added onto the unpaid assessments. Should your delinquency continue, the association has the right to place a lien upon your property. The lien may lead to a foreclosure if the delinquency is not paid. Of what importance are CC and R’s and Bylaws? CC and R’s and Bylaws are the rules and regulations of the community, meant to guide the use of individual properties and common areas. Buyers should be aware that CC and R’s and Bylaws may be written so as to restrict not only property use, but also to restrict owners’ lifestyles, for instance, spelling out hours during which entertainment, such as parties, may be hosted. CC and R’s and Bylaws are highly important and should be thoroughly examined and understood prior to purchase. They bind all owners and their successors to the rules and regulations of the community. Failure to follow those rules and regulations can be considered a breach of contract. Legal action may be taken against the homeowner for any such breach. At what point in the real estate transaction will I be allowed to review a copy of my CC and R’s and Bylaws? Legally, it is the responsibility of the owner to provide the prospective purchaser with the governing documents of the development (CC and R’s and Bylaws), the most recent financial statement of the Homeowner’s association and notice of any dues delinquent on the unit. The law states that these items should be delivered as soon as practicable; however, the prospective buyer should request to see them as early as possible. If you do not fully understand what is stated in these documents, consult a real property attorney. Should I object to items included in the CC and R’s and/or Bylaws, will I have the opportunity to terminate those items prior to taking ownership? No. The process required to terminate these restrictions is often complex and costly. Termination of restrictions will require, at least, a majority vote by members of the Homeowner’s association, and may require litigation. What if I have further questions regarding Condominium and PUD ownership? Ask any questions you may have before you buy! Don’t wait to take ownership to find out about restrictions and regulations affecting your Homeownership rights.

Condominium and PUD Ownership

When purchasing a piece of property, it is important to be aware of any environmental liabilities associated with it. For example, you should find out if there are any registered underground tanks within several miles of the property, known contaminated properties in the neighborhood, or property owners who have been fined by the government for failing to meet environmental safety standards. Before, it took a costly site investigation to acquire this type of information, but now there are online environmental databases available at a fraction of the cost. Anyone can access reports on otherwise hard to detect environmental issues. With these databases, it is possible to obtain a list of hazards near a property, or spills and violations attributed to businesses nearby. Some reputable databases include VISTA Information Systems, located in San Diego, California, which allows you to register and search the data bank for free, and E Data Resources, which is located in Southport, Connecticut. These services are all relatively inexpensive, but can provide you with priceless information that is useful before you make a purchase.​

Environmental Issues

Estate planners often recommend Living Trusts as a viable option when contemplating the manner in which to hold title to real property. When a property is held in a Living Trust, title companies have particular requirements to facilitate the transaction. While not comprehensive, answers to many commonly asked questions are below. If you have questions that are not answered below, your title company representative may be able to assist you, however, one may wish to seek legal counsel.
 
 Who are the parties to a Trust?
 
 A Family Trust is a typical trust in which the Husband and Wife are the Trustees and their children are the Beneficiaries. Those who establish the trust and transfer their property into it are known as Trustors or Settlors. The settlors usually appoint themselves as Trustees and they are the primary beneficiaries during their lifetime. After their passing, their children and grandchildren usually become the primary beneficiaries if the trust is to survive, or the beneficiaries receive distributions directly from the trust if it is to close out.
 
 What is a Living Trust?
 
 Sometimes called an Inter-vivos Trust, the Living Trust is created during the lifetime of the Settlors (as opposed to being created by their Wills after death) and usually terminates after they die and the body of the Trust is distributed to their beneficiaries.
 
 Can a Trust hold title to Real Property?
 
 No, the Trustee holds the property on behalf of the Trust.
 
 Is a Trust the best way to hold my property?
 
 Only your attorney or accountant can answer that question. Some common reasons for holding property in a Trust are to minimize or postpone death taxes, to avoid a time consuming probate, and/or to shield property from attack by certain unsecured creditors.
 
 What taxes can I avoid by putting my property in trust?
 
 Married persons can usually exempt a significant part of their assets from taxation and may postpone taxes after the first of them to die passes. You should check with your attorney or accountant before taking any action.
 
 Can I homestead property that is held in a Trust?
 
 Yes, if the property otherwise qualifies.
 
 Can a Trustee borrow money against the property?
 
 A Trustee can take any action permitted by the terms of the Trust, and the typical Trust Agreement does give the Trustee the authority to borrow and encumber real property. However, not all lenders will lend on a property held in trust, so check with your lender first.
 
 Can someone else hold title for me “in trust?”
 
 Some people who do not wish their names to show as titleholders make private arrangements with a third party Trustee; however, such an arrangement may be illegal, and is always inadvisable because the Trustee of record is the only one who is empowered to convey, or borrow against, the property, and a Title Insurer cannot protect you from a Trustee who is not acting in accordance with your wishes despite the existence of a private agreement you have with the Trustee.

Living Trusts

Underground heating oil tanks can pose many potential problems to both home buyers and sellers. They have been the source of many environmental problems such as contamination of surrounding soil and ground water. Leaks are generally caused by the rust inside underground tanks or by an electrical condition sparked by electric utility lines. Buyers should always have the tank inspected to make sure that it is structurally sound. Buyers who do not want an underground fuel tank can arrange for an above ground tank to be installed in the basement and the underground tank to be shut off. Cleanup of any leaks will also have to be taken care of. For buyers, the underground heating oil tank should be written in the sales contract. For sellers, your lawyer should make sure that the description and condition of the underground heating oil tank is accurate and up-to-date.​

Underground Heating Oil Tanks

Lead poisoning is a serious problem that can lead to adverse health problems. In children, high levels of lead can cause damage to the brain and nervous system, behavioral and learning problems, slow growth, and hearing problems. In adults, lead poisoning can cause reproductive problems, high blood pressure, digestive problems, nerve disorder, memory and concentration problems, and muscle and joint pain. Lead poisoning is especially a problem in cities with older buildings. Typically, lead is present in the paint from older buildings, in the water supply, and in the environment from cars and buses. Preventing lead poisoning in large cities, where there is such widespread possibility for exposure is both difficult and expensive. Federal programs have attempted to address this problem. Lead poisoning is also an issue that buyers and sellers need to consider. Houses that were built before 1978 probably have paint that contains lead. Federal law requires that sellers disclose known information on lead-based paint hazards before selling a house. Sales contracts must include a federal form about lead-based paint in the building. Buyers will have up to 10 days to check for lead hazards and are likely to stipulate corrections.​

Lead Poisoning

An increase in foreclosure rates will inevitably bring with it an increase in short sales. But what is a short sale? A short sale happens when you sell your house for less than your remaining mortgage balance, the proceeds of which go to the lender and in return the lender forgives the remaining balance. Selling your home as a short sale is one way to avoid foreclosure. As a general rule, lenders lose money when they foreclose on a property. Consequently, they would rather not have to foreclose if it can be avoided. A short sale represents an opportunity to cut their losses because a short sale usually allows them to recoup more of the cost of the loan than a foreclosure process would. However, don’t think that a short sale is an easy thing to accomplish. In order to get permission for a short sale, you must provide documentation showing a genuine financial hardship. And don’t think that the decision for accepting a short sale is solely in the hands of the lender. Sure the lender must first agree, but this is not the final word. If there is mortgage insurance involved, this company also gets input on the decision. If there is an investor backing the mortgage, they also get input as to whether to accept a short sale. The transaction process for a short sale can be rather cumbersome as well, whether you’re on the buying or selling side. Many short sales fail due to additional demands by the lender, such as requiring the broker to reduce his or her commission and/or that the seller signs a document requiring him or her to pay back the shortfall. If you’re on the selling side of a short sale, consider having your agent or other experienced professional negotiate with your lender for a better deal. And remember, if the lender does accept a short sale and forgives part of your debt, that is considered taxable income and you must declare it as such to the IRS.​

What is a Short Sale Anyway?

In order to get the highest price in the shortest time, you need to know how to market your home. The better you market your home, the more offers you will get. And the more offers you get, the more choices you have to get the price and terms you want. The most important factor of marketing your home is pricing it right. Your price should be adjusted to reflect the market and your property’s worth. The key is to get as many people as possible checking out your fairly priced property. If your property is not priced fairly, there will be no buyers because your price is set too high. Another important factor is the condition of your home. Make sure that your home looks ready to be sold. Fix any defects (peeling or faded paint, cracks, stains, etc.) Condition alone can sometimes prompt fast buying decisions. Not only should you fix any defects, but consider upgrading your home by making major repairs and cosmetic improvements before selling. A nice looking home triggers the emotional response that can lead to a financial response. Learn how to negotiate the best terms for all parties involved. Terms are another factor that may be adjusted to attract buyers. If you insist on getting your asking price, think of what you can offer to the buyers. For example, improvements you’ve made or even offering seller financing at a lower than market interest rate on a portion of the sale price. Convince them why they should be paying the price you have set. Lastly, get the buzz out about your home. List your house with a hot agent that ensures your house is listed on the MLS and on the Internet. On your own, get the word out. It should always be visible to passersby that your house is for sale, whether it is through signs, local advertisements or you telling friends, family, and acquaintances.​

Getting the Highest Price in the Shortest Time

The price is the first thing buyers notice about your property. If you set your price too high, then the chance of alienating buyers is higher. You want your house to be taken seriously, and the asking price reflects how serious you are about selling your home. Several factors will contribute to your final decision. First, you should compare your house to others that are in the market. If you use an agent, he/she will provide you with a CMA (Comparative Market Analysis). The CMA will reflect the following: • houses in your price range and area that were sold within the last half-year • asking and selling prices of houses • current inventory of houses on the market •features of each house on the market From the CMA, you will learn the difference between the asking price and selling price for all homes sold, the condition of the market, and other houses comparable to yours. Also, try to find out what types of houses are selling and see if it applies to your area. Buyers follow trends, and these trends can help you set your price. Always be realistic. Understand and set your price to reflect the current market situation.​

Setting the Price

When reading an offer, keep in mind that you are out to get the best price AND the best terms for you. If you focus solely on the price, you may overlook terms that could be favorable to you as a seller. Some terms that may work in your favor: • higher-than-market-interest in a second mortgage for your home • the buyer will pay for most or all of the closing costs • the buyer will take care of any repairs • quick close - the buyer is pre-approved and ready to close in a timeframe that best suits you • all-cash deal When reading through offers, remember to look at the whole package. Take the time that you need to assess what is being offered and if it meets your needs.​

Considering Offers

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Insist on a Home Inspection | Greater Athens Properties

A professional home inspection protects both you and the buyer. It allows both you and the buyer the opportunity to learn about the property’s defects. A home inspection usually covers the following: • Plumbing conditions - if there is leakage or clogging • Roofing conditions - the extent of deterioration, if there is leakage • Electrical conditions - if there are inadequate circuits or potential fire hazards • Structural problems - if there are problems with the underlying foundation of your home As a seller, the home inspection reports protect you because it establishes the actual condition of the property at the time of sale.​

Insist on a Home Inspection

Published 04/10/2025 | Posted by Bob Allen

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