Opening Titles and Closing Remarks

Last Wednesday at 9:00 a.m. sharp at John Bethell Title Company a nice couple walked into our Downtown office for their refinance closing. The same closing that was on our calendar for 9:00 a.m. - at our East office-- for next Monday.

Yikes!

Then began the questions. The phone calls. A few more questions. I sat in my office behind the front desk and continued working. All the while keeping an ear out listening to how our team handled this unexpected early morning surprise. I couldn't be more proud of them!

Jeanette, one of our Real Estate Closers, after a series of phone calls determined that although we'd been misinformed about the date, the loan package was ready to download and close. Jeanette and Kara, our downtown Closing Officer, apologized for the mix-up but did not point any fingers or assign blame. They offered solutions.

We could reschedule for another day. We could accommodate them later in the same day. Or, they could wait for 30 minutes or so while we tried to get their current mortgage payoff letter, complete their package and close the transaction. The couple chose to wait.

Jeanette printed the package, took the couple into a closing room and started going over the standard documents that did not need any preparation. At the same time Kara obtained the payoff of their existing loan (local lender fortunately) and worked up the closing statement. After a couple of back and forths with the lender's closing representative he approved the closing statement and the couple signed it. They left with smiles about an hour and a half after they'd arrived. Pretty good I thought under the circumstances.

The ability to successfully deal with the unexpected is an important consideration in selecting a title company. Lately many of our closings are last minute or after. It's just the way it is in the current financing environment.

We have seven licensed closers, four closing rooms in two locations. And while these Yikes! moments don't happen often, our folks know how to deal with them effectively. Don't assign blame. Offer solutions. Be flexible.

Meet Claire Voyant, who just joined John Bethell Title Company, Inc. Claire, is now assisting our closing team in predicting the property tax amounts for our real estate closing tax payment escrows.

Every year at this time lenders begin requiring that we insure them that the spring tax payment is paid. May 10^th is the statutory date in Indiana when the first installment of property taxes is due but that amount isn't usually known until the end of April. To comply with the lender's instructions, we escrow enough money (hopefully) at the closing to pay the taxes after the bills come out. Deciding the amount of the escrow is tricky.

This year, rather than attempt these predictions myself, I decided that we needed the services of a professionally trained prognosticator. Claire comes to us after seven years with a local funeral home successfully predicting death. Claire is looking to expand her professional experience by predicting taxes. She turned down competing offers from the IRS and the Congressional Budget Office.

Claire will gaze into her crystal balls (which I got a great deal on at Sam's Club® but I had to buy a case of them) and advise our closers as to what the future property tax amounts will be.

This is a feat of prophesy worthy of Zoltar, himself, with whom Claire apprenticed early in her career. For you see (actually, Claire sees) there are many changes with Indiana Property Taxes this year.

First, as most Hoosiers know, this year for the first time statutory caps will limit that amount of property taxes that can be assessed. For owner occupied residential property the cap is one and one-half percent. Residential rental, the cap is two and one-half percent. For all other improved property the cap is three and one half percent. Depending upon where you live and what you use your property for, your taxes will go up or down as a result of the caps.

Second, the State of Indiana is eliminating the state replacement and homestead credits (not the homestead exemption-that's different) which in the past reduced local property tax levies. So eliminating these will cause property taxes to increase.

Third, the State of Indiana is assuming responsibility for much of the school funding that used to make up the largest portion of the property tax levy. This will reduce taxes.

Fourth, last year's $640 million state subsidy to local governments that reduced property taxes for homestead properties is only $140 million this year. This will cause taxes to increase.

And fifth, no one knows for sure what if anything the State Legislature is going to do the next few months to change any of this. There are dozens of bills introduced in the current session that would affect property taxes.

You can see that Claire's work is cut out for her. And according to a state official I heard Tuesday only about a dozen counties are expected to mail tax bills on time, so we'll be doing a lot of tax escrows.  The escrows need to be sufficient to pay the taxes when they become known.

Please join me in welcoming Claire to our team. After the need for tax escrows passes, Claire will assume the additional responsibility of helping our employees decipher what I really meant to say when I said something totally different. Claire foresees a rewarding career with John Bethell Title Company, Inc. long after the need for tax escrows subsides.

After conducting thousands of closings I know that the title insurance commitment is the least understood and most ignored of all the residential real estate closing documents. Few buyers understand what a title commitment is for. They just know that they need it or that their lender requires it.

The title commitment (in some markets it's a prelim or a binder) is the operating manual for attaining legal ownership of the home that you're buying. It is a summary of the rights associated with the property. Here's how to use the title commitment to make sure that you get the property rights that you bargained for.

Prior to the closing, request the title insurance commitment and review it with your Realtor®, attorney or other representative.

Schedule A of the commitment lists the basics of the transaction. Verify that this information is correct and advise the title company of any concerns.  Are your names spelled correctly?  Does the insurance amount equal the purchase price? When there are multiple counter offers, sometimes the title company doesn't receive the last one.

Are the owners shown in the commitment the same people who signed the purchase agreement? Often when there are multiple owners, we find that not all of them signed the purchase agreement.

Does the property description in the commitment seem to match the one in the purchase agreement? Pay close attention to acreage amounts and question any inconsistencies. It may be that not all of the property or even the wrong property was searched.

Schedule B Section I of the commitment lists all of the documents and other requirements necessary for the title company to issue their policy to you. Besides the deed, new mortgage and affidavits, this is where you'll find a list of all of the seller's liens that must be paid off before you can receive clear title. Prior to the closing, make note of the face value of all the liens shown. If the total is close to or exceeds the purchase price it may be an indication that the seller is short.Consult with your Realtor®, attorney or other representative in these situations.

At the closing, examine the settlement statement to make sure that all the liens are being paid off. (In some locales, Privacy Practices prevent the buyers from seeing the seller's statement. Instead ask the title company to waive the seller's liens on your copy of the commitment or by a separate endorsement.)

Schedule B Section II of the commitment will show the details of the current real estate taxeswhich is usually the basis for any tax prorations on the closing statement. This section is also where any easements, restrictions and other property rights that will remain on the property after the closing are listed. Review these matters to ensure that you understand what you are purchasing. This is especially important if you are contemplating changing the use or altering improvements on the property. Restrictions may prohibit your plans or intended use.

Some title companies do not do a complete search of the public records for easements and restrictions. Instead they make their policies subject to "any and all recorded easements and restrictions." Follow this link to learn more about this consumer unfriendly practice that I dubbed "Title Insurance Lite."

In some markets the commitment may be organized differently than described here. All of the information will be there though. Keep looking until you find it.

Bring your title commitment to the closing. You can refer to it as needed to make certain that all the documents and tax prorations are correctly prepared. And if you don't understand something, ask for clarification. Most people only buy a few properties in their lifetime. Don't be embarrassed by what you don't understand. Mistakes are much easier to prevent before the closing than to correct after it.

Finally, compare your commitment to the final title policy when you receive it. The seller's liens should be gone. There should be nothing in Schedule B of the policy that you didn't agree to. Put your policy with your other valuable papers.

The commitment is the operating manual for obtaining your home's property rights. And as with anything complicated and unfamiliar, it pays to read and understand the manual.

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This is another in my ongoing series "Ask the Title Guy." If you're a realtor® or lender I hope these posts will prove helpful in explaining things to your clients. I will be tagging them as "Ask the Title Guy", so when you stop back, you'll know exactly where to look. And if you have a question you'd like me to address either leave a comment or email me directly.

pictures purchased www.123rf.com

I'm addicted. Some of you are there with me. Getting up early. Staying up late. Writing. Posting. Thinking about writing. Thinking about posting. Praying for comments!

And I've done it again. I've started another blog; this time with my friend Chris Dickens. It's called Branding Chaos.

Branding, as in what many of us participating in social media are trying to do. Create a personal Brand. Create power in our Brand. Drive business to us because of our Brand.

Chaos, as in the scientific sense of the word.  A system so large, interdependent and complex that predicting its behavior is impossible. That's how we see Social Media.

Branding Chaos is for Bloomington business. Chris and I hope to introduce Bloomington businesses to social media and discuss it in a friendly "Look what I just discovered!" manner. Chris, an IT professional, will also post about technical issues that sometimes complicate our social media experience. And when other Bloomington business owners take the plunge into social media, maybe Branding Chaos can be a forum for us to share what they're doing and for them to share what they're learning? We hope so.

Chris and I are not experts but we are certainly social media enthusiasts. We both feel that if we can help a few of our neighbors become active participants, it will enhance what we're trying to do in social media with our businesses. We're trying to help create our market. We're trying to get Bloomington past the "well, nobody else is doing this" stage. We're trying to accelerate the adoption of social media in our community.

I will continue posting to Opening Titles and Closing Remarks. This blog is an important part of my personal and company branding strategy. And I'm more excited than ever given the recent enhancements to the platform by Active Rain. I will repost here an occasional Branding Chaos offering appropriate to a real estate audience.

So if you get a chance, check out Branding Chaos. The link will always be over there on the right. I'd love to know what you think.

We just distributed our 2008 year-end Monroe County Statistical Package to our clients. Monroe County, although not immune to the effects of national mortgage and home price ills, fared well in 2008 all things considered.

The total number of recorded deeds representing a sale transaction fell to 2178 - a drop of 22.5 percent from 2007, which may seem bad but is much better than most markets in Indiana and around the country. This is the fifth year in a row that sales transactions declined. (I'm hoping to live long enough to once again face the challenges of managing in an improving market.)

The leader in total mortgage consideration in 2008 was again Monroe Bank with over $139 million lent. Monroe Bank and Indiana University Federal Credit Union were neck and neck in total mortgages recorded with 663 and 631, respectively.

Not surprisingly, a number of previously active lenders disappeared completely from our report during 2008, either through merger or ceasing operations. ABN Amro, Fieldstone Mortgage, Washington Mutual all were sporting big fat zeros as the year moved along.

Most interesting to me is that the number of new foreclosures being started has not increased in Monroe County the last two years. 

A steady employment picture is one benefit of living here where many people work for either the Indiana University or in the health care profession. I don't see layoffs in the immediate future for either of them.

The statistics are compiled as a by-product of maintaining our property records data base, the most comprehensive and up to date index of all matters affecting title to real estate in Monroe County. This extensive data base allows us to perform most title searching and examining activities within our office at any time rather than at the courthouse only while it is open. As a result, we can meet the narrowest of time frames for getting your transaction completed.

Interested in more detail? We'd be happy to send you a copy of the 15 page report. Please use the contact option on this web page or leave me a comment.

If you're not from Indiana, you can't appreciate how involved we all get at this time of year. Watching it on TV. Reading about it in the paper. Passionately rehashing the strategy and decisions every day at the water cooler, in coffee shops and in bars all over the Hoosier State.

Of course I'm talking about Indiana Basketball Property Tax Reform. Yes, that now annual rite when our legislators take up a subject near and dear to the hearts and wallets of their constituency. The time when they feverishly attempt to right past injustices (perpetrated by previous legislatures) and find the holy grail of equity in our Property Tax system.

If you're writing or accepting Purchase Agreements this year, make sure you understand what's going on with the taxes. There are a dozen or more bills introduced that might change what you know.

Last year, taxes on homestead properties benefited from a $640 million dollar one-time state subsidy. This year that subsidy is only $140 million. Off-setting that subsidy reduction, caps on the amount of taxes that can be levied against different classes of property are being implemented. The caps are one and one-half percent of assessed value for residential, two and one-half percent for residential rental and three and one-half percent for commercial and other property. The legislature may vote this session to have the caps put on a ballot so that they can become part of the state constitution. Or they may change it all retroactively. Who knows?

A variety of other factors complicate the uncertainty. The property tax replacement and homestead credits from the state to local government are being eliminated. But the state is taking on much of the school funding responsibilities historically funded by property taxes. Many homes have radically different assessed values. Some counties haven't issued last year's tax bills yet.

I wish I could offer advice as to how this will affect your transactions. I'd just be guessing. And guessing is what I will begin doing. In March I am required to insure lenders that the first installment of taxes is paid even though no bill is available. Title companies all over Indiana will begin escrowing at closing an amount they feel will be adequate to pay the taxes when the bills come out. Two years ago 25 percent of our escrows were short. Last year only two short files. This year-GULP!

The advice I can offer is to be very careful about how you represent property tax issues with your clients. No one can say for sure what taxes will be in the future. Uncertainty is an inherent risk of property ownership that Buyers need to accept. Not their Realtor®. Not their Lender. And not their Title Company.

My post yesterday "I'm just asking . . ." elicited many thoughtful comments.  So many comments in fact, that I thought another post is the only way to do justice to the issues raised by my readers.

This new and largest yet mortgage refinance boom will help homeowners with a significant equity and great credit. People got that way because they are careful with their money and responsible with their obligations. Helping people of this character will certainly increase the odds that the economy benefits.

There are millions of homeowners, many of them young families and single parent households that are also careful with their money and responsible with their obligations. Unfortunately they live in any of a number of other places where housing values have declined and they now are upside down.  Most of these families cannot refinance and increase their disposable income; even though they are still responsibly meeting all their obligations.

I am not pleading on behalf of people who live beyond their means and must pay the price for that lifestyle choice. Nor am I advocating against the homeowners who can refinance now.

I'm just really bugged about the unfairness of it all. Responsible families, who would benefit the most and in turn benefit the economy most, are shut out. They're making their payments at higher rates; I'll think they'll make them at a lower rate as well. If taxpayers weren't spending half a trillion dollars to help someone anyone, I would not be particularly bothered by this. So is the government making the wrong choices? Helping the wrong people? I'm just asking.

Lenn Harley astutely noted "that negative equity is the elephant in the room." Could some of the taxpayer funded bailout be used for kind of credit insurance or incentive? Help responsible families? I'm just asking.

Readers mentioned streamlined FHA refinances. No appraisal needed. Regrettably, you need to already have an FHA mortgage. In the few years prior to the subprime collapse FHA's share of all mortgages made is under five percent. Almost all low down payment transactions used piggy back second mortgages or some PMI. Those transactions cannot be refinanced with an FHA loan unless an appraisal shows minimal equity in their property.

Do we help any of the other responsible borrowers without FHA mortgages? I'm just asking.

It's been widely reported that ten percent of borrowers are at least one month late making their mortgage payment. Do we help a portion of the other responsible 90 percent who might benefit from lower rates but can't? I'm just asking.

I'm just asking and you're just commenting. Thanks to Active|Rain for creating a place we can discuss this in such a thoughtful and civil manner!

Most everyone knows by now that there's a flood of refinancing going on. Refinancing is front page news in the mainstream media. The low rates are artificially induced by the government's intervention into the mortgage securities market. Many homeowners are going to benefit. A lot of the money saved will be spent. That's good for the economy.

I think the Washington policy wonks got it wrong. Big surprise there. The intervention is not helping many people who need and deserve help the most. This post is not to argue whether or not the government should intervene. That decision is made.

The people benefiting from this artificially induced largess are homeowners with exceptional credit and lots of equity. There are millions of homeowners out there, through no fault of their own, who no longer qualify for the mortgage someone made them two or three years ago. (Dan Green explained this quite well one year ago here.)

These families are making their payments. They are making difficult lifestyle choices in order to enjoy the benefits of homeownership. Maybe they're carrying too much debt now, but what young family trying to get started doesn't? A combination of their debt to income ratio and loan to value ratio and not their payment history is preventing them from refinancing. Preventing them from putting an extra few hundred bucks in their pocket every month.

These families are struggling but still getting by; still living up to the terms of legal contracts that they entered into with eyes wide open; still managing to pay Peter and Paul because they forego some of the other luxuries in life. Now if you could help these families, wouldn't that help move the country towards better economic times? I'm just asking.

I'm not smart enough to know exactly how to help these families, but if they're making their payments at six and one-half percent or more, I think they'll make them at five percent. Despite the fact that their equity may be low or non-existent and that their debt to income ratio is high. Instead we're shutting these people out because they don't meet the new lending guidelines arbitrary rules.

Someone needs to start asking how we can help families who make responsible life choices.

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I'll be back in a day or so with my continuing series on 2009 real estate closing title insurance changes that may impact you.

Hey folks! Money is on sale! Get it while it lasts! Money in the form of mortgage loans for credit worthy homeowners and home buyers with equity in the deal, that is. Rates are great. Really great! People are rushing to refinance. Your chosen title company (and everyone else in the mortgage loan finance process) is probably dealing with a welcome but unforeseen three to four hundred percent increase in new title orders the last five weeks.

Make no mistake. This sudden increase will result in more last minute craziness for some real estate closings. Not because anyone is incompetent, just because everyone is suddenly swamped. If you want to minimize the chances of your next deal ending up like a Chinese fire drill, here's a few suggestions.

What to do.

There are steps you can take to ensure that your next deal doesn't accidently end up in a panic the day before closing. First, once your deal is ready to go, get the title order in and let the title company know up front exactly when you hope to close it.  And if that time frame suddenly shortens, let everyone know ASAP. The more lead time afforded, the better the chance things will get done on time.

Second, do your usual follow ups with everyone in the transaction a few days earlier in your time-line. The entire system - loan underwriters, appraisers, title companies- are stressed managing through this sudden increase in business. Production times are bound to lengthen. You want to be in line early.

Third, encourage your clients to be timely. Don't wait to start the loan application process. It's going to take longer. They need to get their loan officers all their documentation as soon as possible. All through the process, incomplete deals will get moved to the bottom of the pile and inevitably incur delays. A deal without lose ends is more likely to be completed within everyone's expected time frame.

Fourth, avoid Friday closings -especially Friday afternoon. In this environment, everything that can be put off until tomorrow, will be. Tuesdays and Wednesday are good days. Those will be among the first deals worked on every Monday. You don't want your deal delayed because it took longer to get someone else's deal done.

Happy Endings

Follow this advice and you and your clients stand a much better chance of avoiding the referral killing last minute closing meltdowns. Most deals always close. To ensure a happy ending in this new environment though requires a little more active delegation than what you may have become accustomed to over the last couple of years.

I'm posting about 2009 changes to the Real Estate Closing and Title Insurance business. Monday, I'll be back with more about the Hoosier State's favorite pastime, and it's not basketball.

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In case you're wondering, the header picture on this page isn't sized correctly because the blogging platform changed, and I'm still at the low end of the learning curve. lol

For the next few days, I'll be posting about 2009 changes to the Real Estate Closing and Title Insurance business.

Have you seen your friendly neighborhood title guy lately? Possibly not. Many of us are buried under a sudden avalanche of refinance title insurance orders.

New Title Orders Explode

After October and November, two of the slowest months I've experienced since 1981, refinance title orders in many locations are off the charts. In 35 years I've never seen order counts turn around this quickly. I went home at Thanksgiving preoccupied with how I was going to get through the winter with my current staff. I did an interview the first week of December for WTIU-TV talking about how title companies cope with severe downturns in the real estate market. Today, that seems farther in the past than when Republicans were fiscally sound.

As a result of various governmental stimuli directed at lowering interest rates and improving liquidity in the mortgage market, refinance order counts are the best in four or five years. Many of my colleagues around the country are reporting similar trends. How long this will last is anyone's guess, but I'm thinking for a few months at the minimum.

Gulp!

The big question here is "Are we ready?" The title industry shed tens of thousands of jobs the last two years. Many companies, particularly those that chased sub-prime business, went away completely. During the last few years, some companies off shored significant parts of their process. These off shore groups didn't exist during the last boom. How will their service levels hold up now? The same concerns are there for other participants in the closing process as well. Appraisers. Underwriters. Will they hold up?

Be alert.

As a client of the title business, now is the time to pay closer attention until you're sure about your chosen company. My crew is already in "warp speed" mode. I'm confident we'll continue to meet and exceed our client's expectations. Many other companies will as well, some better than others. Recognition on your part that the environment is changing will help you and your client avoid the craziness that comes with last minute deals.

I'll be back later tomorrow with specific recommendations to help you avoid any unexpected craziness.