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Reading Title Commitments For Better Closings

Q: What is the most common mistake Realtors (and FSBO parties) make in reviewing a title insurance commitment?

A: They don’t review or read it at all!

Most Realtors are trained not to act as attorney’s or give any legal advice. The Title Commitment is a legal document and advising a client on it could constitute legal advice. In addition, many Realtors and FSBO parties simply don’t know what to look for and, therefore, don’t read the document.

Title Commitments Provide Critical Information

All Realtors should be reviewing the title commitment for certain, important information. A title commitment has three sections or schedules: Schedule A, Schedule B-I Requirements, and Schedule B-II Exceptions. At a minimum, Realtors should be reviewing the following:

Schedule A

The first part of the title commitment provides the names of the proposed insured. This should be your buyers. If it is not, call the title company right away – they might be missing an Amendment or their might be an error in your paperwork.

The Policy Amount should match your purchase price.

The name of the seller should be listed in paragraph 3 as the “fee simple” owner. If the name is different, there may be a title issue such as a deceased individual or spouse that still owns the property, a trust or LLC that has an interest in the property, or some other issue that requires attention.

The land referred to in the policy should match the land being sold. It will be a legal description, not a postal address. Review to make sure it looks right, especially if the property is a Condominium or includes multiple lots.

Schedule B-I Requirements

This portion of the title commitment provides a list of requirements that must be met in order to close. The requirements will call out any unusual issues that must be dealt with at closing. For instance, if the seller is deceased, the Requirements might require a valid Personal Representative to be appointed to sign on behalf of the estate.

In addition, most title companies will include any loan payoffs, taxes, or other liens that must be paid at closing. Some title companies, however, will show those liens in Schedule B-II.

Schedule B-II Exceptions

This section shows all of the title “issues” that are excepted from coverage – in other words, the title company will not insure for these issues. They are usually things like covenants, restrictions and easements. But, at some title companies, seller mortgages and liens will appear in this section. Therefore, it is important to review.

Reviewing is not Advising

Although Realtors should review the title commitment, they should not advise their clients about the legal meaning and effect of this document. That would constitute legal advice and is prohibited under Wisconsin Law. Nevertheless, if the Realtor spots a problem (the wrong seller or buyer or too many Mortgages), that should be brought to the client’s attention with the advice to seek legal counsel.

The title commitment is a critical document that provides all parties and their agents with notice of the current state of title. While Realtors should not make a “legal” review of this document, they should make a thorough review to avoid any closing problems.

 

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Photo Tips For Real Estate

Homestead Title Company provides a unique touch at closings table, showing slide-shows of the homes being sold. We see some beautiful photos. A quick survey of the MLS and FSBO sites, however, will show some dismal listing photos.

As an avid, amateur photographer, I am sometimes dismayed at the quality listing photos. Realtors and FSBO sellers often post some terrible photos and do themselves and their hopes of selling a disservice. The following tips are compiled from great Realtors, some great photographers we’ve worked with, and materials listed below.

  1. Understand the photo’s purpose: The purpose of a real estate photo is to sell real estate. Buyer’s viewing the picture should be drawn in and want to see more. Focus on parts of the property that will sell and do not photograph parts of the property that are less desirable.
  2. Simplify! Simplify your photos by removing everything from the picture that distracts from your purpose of making the home look attractive. Particularly avoid including chair backs, door frames, pets, people, toilets, and clutter in photos. The photographer should keep an eye out for things that can be done to improve the photo. Sweep floors and patios and remove clutter. If you use a stager or professional cleaner, try to take photos immediately after they complete their work.
  3. Use a wide-angle lens to shoot interiors: If possible, use at least a 24mm equivalent lens – anything higher than 28mm is not wide enough. Few off-the-shelf or point-and-shoot digital cameras come with lenses that are wide enough to truly, effectively shoot interiors. Consider hiring a professional or investing in a digital SLR camera with a good wide-angle lens
  4. Shoot Bright Interiors: Bright interiors are more attractive to buyers than dark moody ones. Use a flash, interior lights, and window lighting to brighten the photos.
  5. Don’t let bright windows distract:
    Bright is better.  But, windows can be hundreds of times brighter than other parts of interiors, causing them to appear completely white or “burned-out.”  Avoid this by using a flash, shooting at twilight when the light level outside is near the inside light level or using photo-editing techniques to darken the windows.

  6. More is better. Home buyers want to see more than just the front of the house. Buyers also want to get a look at the living room, kitchen, dining room, family room, master bedroom/bathroom and the backyard. For condos, consider shots of attractive common elements.
  7. Change With The Weather. Out-dated photos send the message that this is an out-dated listing. Don’t include snow pictures in spring and summer, or summer pictures in winter. Also, be aware of the mood of the scene. A gray, cloudy day offers great lighting conditions, but may convey gloom and despair in outdoor photos. New fallen snow can be beautiful (and difficult to photograph) but will obviously convey a chilly feeling. Include warm interior photos along side such pictures (fireplace or a bright room with warm colors).
  8. Go Pro. Professionals are surprisingly affordable and should provide much higher quality, sharper, properly lit images. They will often also provide other services, including virtual tours and web-ready photos).
  9. Invest In Good Equipment:
    If you insist on doing it yourself, invest in good equipment. Professionals use SLR cameras (single lens reflex camera with interchangeable lenses), a tripod, and an external flash unit. This equipment is expensive, but worth the investment. Consider that a Cannon or Nikon DSLR with a wide angle lens, a tripod and flash will cost under $1,000. Paying a professional for 10 listings will likely cost more. In other words, you could pay for your investment in less than a year.


  10. Consider Leveraging Your Talents:
    If you have good photography equipment, a little talent, and time to prospect, offer your services to FSBO Sellers. Take a look at FSBOMADISON.COM for an example of hundreds if not thousands of horrible real estate photos. Offering free photo services allows you to spend a lot of time with prospects while selling your services and building incredible good will.

     

Good Photography Resources:

 

The Digital Photography Book, By Scott Kelby

Excellent, easy to read book with outstanding and understandable advice for amateurs.

The Ditigal SLR Book, by Jon Canfield

Good book with good information for all levels of experience

http://www.bhphotovideo.com

Best, low-cost outlet for all things photography

http://photographyforrealestate.net

Photography resource for Realtors and the source for much of this publications

http://www.all-things-photography.com

Resource for professional photographers, but may have some helpful links and ideas

http://www.squidoo.com 

Good Educational content posted by blogger/readers

The Camera Company

Excellent, local (Madison, WI) source of equipment and expertise.

 

Finally, if you really want to see some AWFUL pictures, check out:
https://www.facebook.com/BadMLSPhotos

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If you owe a debt to someone else and they cancel or forgive that debt, the cancelled amount may be taxable.

Cancelled or forgiven debts happen every day in the Real Estate world. Short sales and foreclosures result in substantial, cancelled or forgiven debts. The Bank’s loss may be considered the home owner’s gain – a taxable, forgiven debt. A short sale happens when the proceeds of a home sale are not enough to pay off the mortgage. The bank agrees to take a “short” payoff and may cancel or forgive the shortage.

For the last 5 years, most homeowners were exempt from paying taxes on that forgiven or cancelled debt. Unless Congress acts soon, homeowners will have to start paying income taxes on that debt.

Taxable Income

If you owe $200,000 on your home but your sale only results in $150,000 in proceeds, you will be “short” by $50,000. You would likely need to count that $50,000 as taxable income to the IRS! In this case, you might owe and additional $12,500 in tax liability. In fact, you may owe this tax even if your house is foreclosed if it results in a shortfall to the bank.

Mortgage Forgiveness Debt Relief Act of 2007

The Mortgage Forgiveness Debt Relief Act of 2007 exempts many home owners from paying taxes on the forgiven debt. This law, however, is set to expire at the end of 2012. If it does, it may have a chilling effect on short sales and loan modifications. Many experts and commentators believe Congress will extend the law. It was originally effective until 2009 and Congress extended it to 2012 as part of the Emergency Economic Stabilization Act of 2008. In August, the Senate Finance committee approved a one-year extension, with bipartisan support (this was not a full vote of Congress). Others are more skeptical. A lame-duck Congress has its plate full with the looming “Fiscal Cliff.”

If the law is not extended, many believe the Real Estate market will suffer. Indeed, over 20% of Dane County sales are distressed property sales. These distressed sellers would be faced with another, “phantom” tax just to walk away from their homes.

 

 

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New Rates In Response To OCI Bulletin

Wisconsin title companies recently revised rates in response to State regulatory pressures from the Office of the Commissioner of Insurance (the OCI). There has been a lot of confusion over the recent rate changes. Indeed, there have been suggestions that the new rates have nothing to do with the OCI’s recent Bulletin and that title agents can continue to offer any rates or discounts they wish.

In fact, an OCI Bulletin sent a clear warning about rates and when discounts are allowed. The OCI warned title companies that:

  • Discounts must be made pursuant to a filed rate program.
  • Discounts can only be offered for risk-based reasons.
  • Discounts may not be made for purely competitive reasons.

This is a significant change in how the OCI regulates title rates. The result, however, has not been significantly higher rates. Title companies have filed new rates that are actually lower than previously filed rates. And they filed rate-discount programs that allow rates to remain competitive.

A Short History Leading Up To The New Rate Filings

The state has always required title companies to file their rates. The filed rates must be approved and cannot be “excessive or inadequate.” Over the last two decades, however, stiff competition led title agents to discount their charges from the filed rates on every single closing.  For instance, the filed rates on the sale of an average home ranged between $900 – $1,300. Yet, local title companies in Dane County and Milwaukee discounted from these filed rates, charging anywhere from $400-575. Title companies offered these substantial downward deviations from filed rates for strictly competitive reasons.  Arguably, the discounts were excessive and the rates inadequate.

The OCI Bulletin Set Limits on Discounts

The OCI signaled a significant change in enforcement of the law. The Bulletin reminded title companies that they must charge filed rates and these must be neither excessive nor inadequate. The OCI outlined when and how companies could offer discounts from filed rates, emphasizing that discounts could only be made based upon a “rate deviation program” that is based upon risk factors.

The OCI has made clear that it will no longer allow downward deviations (discounts) from any company’s filed rate based upon “market competition.”  Now, any discount must be (1) documented, (2) based on a filed “deviation program,” and (3) made for risk or actuarial reasons. This is a significant change in policy and enforcement.

New Rates – Lower than Previously Filed Rates

Most underwriters responded to the OCI’s actions by filing new rates that are lower than previously filed rates. They generally allow discounts if the title agency is provided with an older (prior) title insurance policy for the property. The filed discounts range from 10% to 20% of the rate and reflect the lower risk in insuring a property where there is already a policy in place.

The result will be a modest increase in prices in the Dane County market and a drop in rates in many areas of the state. In 2011, for example, a typical $200,000 title policy might have cost about $575. Today, that same policy will cost $665 – $750 (assuming the property had been insured previously). This represents an overall increase of less than 1% of the typical seller’s closing costs. Buyer title costs remain unchanged and refinance rates remain fairly static with lower prices on high end properties.

Overall, rates in Wisconsin are still very low compared to regional and national averages. Homestead Title writes for three underwriters and continues to have competitive rates and incredible service. For a rate sheet, contact us at Home@HomesteadTitle.net.

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Free Legal Help for Homeowners Facing Foreclosure in Dane County

Dane County Foreclosure Prevention Taskforce
http://www.daneforeclosurehelp.org
For more information contact:
Dan O’Callaghan (608) 283-0117or Ellen Bernards (608) 576-8658

  

What:            FREE LEGAL HELP!  For homeowners facing foreclosure. Help available in English and in Spanish Ayuda disponible en español también.

Who:              For homeowners who have received a Foreclosure Summons and Complaint

When:           11:00 am – 1:00 pm, Thursday, March 1, 2012 & Every 1st and 3rd Thursday of the month.

Where:          City-County Building, 3rd floor, 210 Martin Luther King Jr. Blvd.

THIS IS A RECURRING EVENT, 1ST AND 3RD THURSDAY OF EACH MONTH.

FREE LEGAL HELP is available for Dane County homeowners in foreclosure.  Homeowners can receive basic legal information and free assistance in writing an Answer to the lawsuit at the Foreclosure Answer Clinic.  The Clinic has assisted almost 200 homeowners to understand the legal process of foreclosure and to respond their lawsuit. Homeowners who respond in writing to the lawsuit have more control over the process and a better chance for a favorable outcome.   

Homeowners have ONE CHANCE to file an Answer to their lawsuit. Filing an Answer is one of the critical things a homeowner MUST do even if the homeowner is in communication with the lender and working on options such as a loan modification or short sale.

Time is of the essence because homeowners generally have only 20 calendar days from the date they receive the initial lawsuit papers to file a formal response called an Answer.  Failing to file an Answer to the lawsuit on time significantly reduces homeowners’ control over the process and their ability to share their story with the judge. In addition, they may not be notified of important steps in the court process of foreclosure.

The Clinic is open the 1st and 3rd Thursdays of each month from 11:00 a.m. to 1:00 p.m. on the 3rd floor of the City-County Building, 210 Martin Luther King Jr. Blvd, Madison.  No appointments are necessary.  Homeowners should bring their Summons and Complaint as well as any other relevant papers about the foreclosure.  

The Foreclosure Answer Clinic is a collaborative effort of the Dane County Foreclosure Prevention Taskforce, the Dane County Bar Association and the UW Law School, with grant funding provided by the State Bar of Wisconsin and other support provided by Dane County.

Who We Are.  The Dane County Foreclosure Prevention Taskforce is a coalition of public agencies, non-profit service providers and other community partners working together to develop sustainable alternatives to foreclosure in Dane County. For more information, please visit daneforeclosurehelp.org.

Our Mission.  To develop and implement a coordinated response to the current foreclosure problem in Dane County. 

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2011 December Home Sales Report – Wisconsin REALTORS® Association.

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It is conventional wisdom that the best time to close a home sale is at the end of the month. Closing at the end of the month means buyers bring less cash to closing. While closing at the end of the month might be more convenient for buyers, it can result in a hefty penalty for Sellers who need to pay off FHA loans. Realtors, attorneys, and sellers need to plan carefully when the seller has an FHA mortgage.

Most mortgages will charge interest for each day that the mortgage goes unpaid. The only extra costs to closing later in the month, or into the next month, are the added day(s) of interest. FHA Mortgages, on the other hand, charge interest in one month chunks. One full month of interest is due, without refund, on the 1st day of each month. Closing on the first few days of the month will result in paying for a full month of interest even thought the seller no longer owns the property. So, it would appear to be best to close on the last day of the month.

Not so fast. A seller that closes on the last day of the month may not be able to get their FHA payoff to the bank until the 2nd or 3rd day of the next month. This will result in a hefty, non-refundable, one-month interest penalty. And the title company may not be able to wire out funds immediately after closing to meet the end-of-month deadline. Wire deadlines range from 1pm to 3pm. In addition, wires that arrive at the receiving bank after 3pm will not be credited until the next business day. And wires can take many hours to travel from one bank to another.

If you know your seller has an FHA mortgage that is being paid off, make sure to schedule closing with at least one business day remaining after closing. This will be a quieter time for the title company and lender, will mean less volume and more attention to your file, and will prevent that nasty, one-month interest “penalty.”

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The Banks’ Dilemma:

To Foreclose or Accept a Short Sale?

Over the past 4 years, short sales – house sales in which the bank holding a mortgage agrees to accept less than the full amount due – have proliferated. Short sale experts have worked hard to dispel the myth that banks never negotiate and never accept less. But now, a recent New York Times article suggests that there may be some truth to that myth.

In a recent article, the Times reported that banks are resisting short sales and putting more focus on foreclosures. In fact, there are some incentives for banks to foreclose, even when a short sale will reduce risk and financial losses. New accounting rules allow banks to delay the “write down” of their loss until the house later sells. In a short sale, by contrast, the bank must take the loss immediately. In addition, the bank with which realtors and home owners negotiate are only one interested party; they are the servicer. Short sales usually also need to have the approval of investors, underwriters, and/or private mortgage insurance companies. And, while the recent foreclosure freeze highlighted the risks associated with foreclosure, banks face many risks in short sales, including fraud. A bank’s decision to agree to a short sale may involve far more than a simple cost-benefit analysis assumed by Realtors, attorneys, and distressed homeowners.

The Times article states that banks are “historically reluctant to do short sales” and suggests that they may be more likely to foreclose, even in the face of a good offer. This has not been our experience, based on anecdotal evidence. Rather, most banks appear very open to negotiating short sales, especially when there is a bona fide buyer in the wings. A large number of short sales are closing. Homestead Title is analyzing data over the past 3 years to determine the percentage of sheriff’s sales in Dane County in relation to the percentage of foreclosure filings.

Homestead Title offers expertise and guidance throughout the short sale process. Owner and attorney Peter Zarov often teaches seminars on foreclosures, short sales, and distressed properties. We will continue to provide updates, information and resources on these topics.

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A deed is the legal document that transfers ownership rights (called “Title”) from one owner to the next. There are many different kinds of deeds in Wisconsin, and the type of deed used has important legal ramifications. A clear understanding of the different kinds of deeds also illuminates why title insurance is so critical.

What Deeds Do

A deed transfers an interest in property from one party to another. In addition, a deed may contain other important language that can affect the new owner, including among others, warranties and reservation of rights.

Warranties

A deed may contain certain warranties or promises. Warranties are the Seller’s promise to the Buyer regarding the title interest that the buyer will receive. The standard Warranty Deed contains the following warranty:

Grantor warrants that the title to the Property is good, indefeasible in fee simple and free and clear of encumbrances…

Thus, a Warranty Deed offers a legal promise that the buyer will receive good title. By contrast, a Quit Claim Deed contains no warranties at all. Other deeds may have limited warranties.

Reservation of Rights

Deeds may also contain reservations of rights. For instance, a deed may reserve interest or rights in the seller or grantor, such as a life estate. A deed might also contain provisions for easements or other restrictions. In other words, deeds may contain limitations on the rights the new owner will receive.

Various Types of Deeds

There are many different types of deeds, including Warranty Deeds, Quit Claim Deeds, Trustees Deeds, Sheriff’s Deeds, and Personal Representative Deeds. The major difference between each kind of deed is the level of warranties provided.

Type of Deed

When Used

Warranties

Warranty Deed In most standard sales. Warrants good, indefeasible title in fees simple, free and clear of encumbrances. This is the strongest warranty and generally gives the new owner the right to seek redress or damages from the seller in the event of most title problems.
Quit Claim Deed Many inter-family transaction, between neighbors, divorce Contains no warranties at all. A seller conveys, and the buyer receives, whatever interest the seller has in the property, even if that interest is nothing at all.
Sheriff’s Deed Sale at the end of Foreclosure Like a Quit Claim deed, there are no warranties. The Buyer gets whatever interest the sheriff was able to convey (which could be nothing at all).
Personal Representative’s Deed Used to transfer property rights from a deceased person’s estate. Involves Probate Court. Like a Quit Claim deed, there are no warranties. Generally, the Personal Representative is unwilling to warrant or promise anything relating to property that he/she has never personally owned.
Special Warranty Deed REO (Bank Owned) Sale Provides very limited warranties. Generally only warrants that the Bank had title sufficient to sell the property.

 

Title Insurance and Deeds

A title insurance policy insures that the new owner will receive good, indefeasible title, free and clear of encumbrances other than exceptions noted in the policy. You may notice that this is almost exactly what a seller Warrants in a warranty deed. Title insurance can be viewed as an insurance policy in the event that a seller breaches a warranty and is unable to pay. And, after all, how many sellers could come up with the kind of money needed to pay for a breach of a warranty?

But what if the seller gave no warranties at all? What if the deed is a Quit Claim Deed, a Sheriff’s Deed, or a Personal Representative’s deed. Then title insurance becomes even more critical. The Title policy would be the buyer’s only recourse in the event of a title defect.

Title Insurance policies always protect buyers against certain unforeseen title problems. This is often added protection above and beyond the buyer’s right to seek redress from the seller. Whenever the buyer has no right to seek redress from the seller – when there are no warranties – it becomes imperative that the buyer receive a title insurance policy.

Giving Legal Advice

This information is intended to serve as a warning to Realtors and other non-attorneys to steer clear of giving legal advice. It is important to understand the characteristics and limitations of each kind of deed. It is even more important to leave the legal advice to attorneys. If a question or issue arises involving which type of deed is appropriate, always consult an attorney.

This information was provided by Attorney Peter Zarov. The information provided is not to be construed or used as legal advice and may not be accurate outside of Wisconsin.

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