Category: Title and Closing


Why a Permit Search is so Important

By Aaron M. Davis, President of Hillsborough Title

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It’s June of 2013, and I get the call. It’s that number you haven’t seen call your cellphone in a while, and something in your gut says, “This isn’t going to be good.” An agent who does business with us, let’s call her “Sally” for our purpose here, was handling the seller side of a transaction in which the buyer selected title. The buyer was an institutional investor who had a relationship with a national title provider. In June of 2013, it was NOT the norm for the title agency to order any type of municipal lien search or permit search. At this time, it was not required as part of the FAR/BAR contract. In fact, the contract only contained the Miami-Dade provision as to municipal lien searches at that time. However, since the buyer was an institutional investor, they were well aware of the risk that resided in Florida pertaining to permits.

Sally begins the conversation something like this, “Hi Aaron, I have a seller of a property who is ready to sue me, my broker, the previous seller, and the law firm who handled the transaction.”

I respond, “Well, good morning to you Sally!”

Sally went on, filling me in on the details.

The current Title Company performed a Municipal Lien Search with Permit Search as part of the buyer’s requirements and due diligence. The permit search pulled up an open permit on the pool. The house was built in 1998 and Buyer 1 bought direct from the builder/developer. The pool was added to the property in 1999 by buyer 1, and in 2004, Buyer 1 sold to Buyer 2, then Buyer 2 selling to the current buyer, Buyer 3 in 2007.

However, nowhere along the chain of the transaction was any permit search performed. The contracts didn’t call for it, and the title provider never searched, as it wasn’t customary or required. Back then, the title commitments and policies contained an EXCEPTION for what is now called the Section 159 Statute, which is related to items of “unrecorded nature” (i.e. unrecorded code enforcement, utility bills and permits).

So in 2013, the first permit search was completed only to find the open permit on the pool. It was a cash offer and the seller was free and clear; no liens, judgments, and the seller already vacated the property and was leaving the state. I make some calls, get it resolved and close the deal! Easy peasy, lemon squeezy.

WRONG!

So here it begins: The buyer won’t buy the home until the permit is closed. So, my first call to action- call the pool contractor – from 20 years ago – who is no longer in business. Second call, let’s contact another pool contractor to see if they can inspect and sign off on another contractor’s work. WRONG, no can do. Their liability insurance won’t allow that.

Next, let’s call an engineer! An engineer went to school for this sort of thing, and he can sign off! So we have the owner call the engineer to see how he can assist. The engineer says, “Sure, no problem, let me call the county to see the issue with the permit.” As it turns out, it was the final PLUMBING inspection for the pool. Engineer laughs and says, “Well, it’s 20 years old and it’s not leaking, I’ll sign off on it.” (Crowd erupts with applause. Problem solved, right?)

As my friend Lee Corso says, “NOT SO FAST MY FRIEND!!!”

Per the county, in order to close a permit of this nature, the pool has to be brought into current compliance with Child and Elderly Safety. So, guess what the pool that was built in 1999 DIDN’T have? You guessed it, child safety gates!

Let’s do the math:

  • $250.00 to the County to reopen the permit
  • $400.00 to the engineer
  • $2000.00 for the child safety gate
  • $50.00 County re-inspection fee

Now, let’s add up the losses:

  • $1,000.00 is expenses to the seller for added utility, storage, expenses
  • Future referrals to the agent from a seller who thinks perhaps it’s the agent’s fault
  • Future referrals to the prior title company, who did the closing in 2007, that the agent now may think is THEIR fault

The losses can go on and on.

 

In September of 2013, the FAR/BAR contract was then amended to include the requirements for permit searches. After the fact, we now see the slew of issues that are caught due of performing the search. (Roofs are a very common issue.)

Now here is the scary part – even though it’s is a part of the FAR/BAR contract, there are still title agencies and law firms that STILL DO NOT PERFORM THE REQUIRED SEARCH!

With that being said, agents, I highly suggest that you ask for THREE things from your title provider when closing:

  1. Get a copy of the preliminary settlement statement (to have your client’s fees)
  2. Ask for a copy of the title commitment (to see if there are any items outside of the norm, odd exceptions, etc)
  3. A copy of the results from the lien search, showing there are no outstanding issues that will turn up in the standard title search

What Makes Up Closing Costs?

What you’ll see in this video is, there may be closing costs customary or unique to a certain locality but closing costs are usually made up of the following:

  • Attorney’s or escrow fees (Yours and your lender’s if applicable)
  • Property taxes (to cover tax period to date)
  • Interest (paid from date of closing to 30 days before first monthly payment)
  • Loan Origination fee (covers lenders administrative cost)
  • Recording fees Survey fee First premium of mortgage Insurance (if applicable)
  • Title Insurance (yours and lender’s)
  • Loan discount points
  • First payment to escrow account for future real estate taxes and insurance
  • Paid receipt for homeowner’s insurance policy (and fire and flood insurance if applicable)

And any documentation preparation fees.


What Can I Expect To Happen On Closing Day?

While this video simplifies things to help you remember: you’ll present your paid homeowner’s insurance policy or a binder and receipt showing that the premium has been paid. The closing agent will then list the money you owe the seller (remainder of down payment, prepaid taxes, and so on) and then the money the seller owes you unpaid taxes and prepaid rent, if applicable.

The seller will provide proofs of any inspection, warranties, and so on. Once you’re sure you understand all the documentation you’ll sign the mortgage, agreeing that if you don’t make payments the lender is entitled to sell your property and apply the sale price against the amount you owe plus expenses.

You’ll also sign a mortgage note, promising to repay the loan. The seller will give you the title to the house in the form of a signed deed. You’ll pay the lender’s agent all closing costs and, in turn, he or she will provide you with a settlement statement of all the items for which you have paid.

The deed and mortgage will then be recorded in the state Registry of Deeds and you will be a homeowner.


What Are Real Estate Commissions?

Like the video says – real estate agents aren’t paid by the hour! They’re paid a percentage of the purchase price in a successful real estate transaction.

When one agent represents the sellers and another represents the buyers the commission is typically split between them.
In the US, real estate commissions are commonly 6% of the transaction usually 3%/3% when split.

No government or industry body sets commission rates.  Legally, commission rates ARE negotiable.  However, remember that agents only earn their commission on successful sales.

Consider the work you want them to do for you to evaluate the value you should put on the commission they earn.


Title Insurance Explained Visually

What is title insurance and why should any buyer get it when purchasing a home (single family, townhouse, condo, apartment, or whatever format your home purchase takes)? Doesn’t the attorney or settlement company handling the closing see to it that you have a clear title? Isn’t this just another way for someone to siphon a few coins off a real estate transaction?

Title insurance prevents the property owner from suffering financial loss if, at any time during his ownership of the property, someone comes along who can show that they have full, or partial, ownership of the property instead.

A careful title search is done at the time property changes hands. On rare occasions mistakes are made anyway. Property can change hands in a number of ways including by deed, by will and by court action. Typically, these proceedings are recorded in different places. Searching the history of ownership to be sure nothing has fallen through the cracks is a tedious job that requires alertness, intelligence, and skill.

It is very likely that the value of your property will go up over the years. As time passes, these elements are likely to result in your home equity’s being your largest asset. Just how devastating would it be if you eventually discovered that someone else owned what you’d always thought was your home?

Do yourself a favor. When you buy a home, buy title insurance.  And watch the video to understand the essentials.


Closing Costs Explained Visually

Purchasing a home is exciting. Once escrow begins, the excitement can change to frustration, particularly if you are not ready for the closing costs that quickly accumulate.

Closing costs simply refer to the fees associated with various things associated with the escrow process in a real estate transaction. In the excitement of having an offer accepted for your dream home, you can easily lose track of the fact you are going to need to have some serious cash on hand to pay them. Many people make the mistake of only assuming they need the down payment money, and have to rush around town trying to come up with money for the closing fees.

Do yourself a favor, and discuss closing costs in advance with your real estate or mortgage person.  And watch this video to have a good mental picture of the costs that you’re likely to incur.

 

What Is An Escrow Account? Do I Need One?

As we show you in this video, an escrow account is an account, established by your lender, to set aside a portion of your monthly mortgage payment to cover annual charges for homeowner’s insurance mortgage insurance (if applicable), and property taxes.

Escrow accounts are a good idea because they assure money will always be available for these payments.

If you use an escrow account to pay property tax or homeowner’s insurance make sure you are not penalized for late payments since it is the lender’s responsibility to make those payments.