Opening Titles and Closing Remarks

Indiana's new Good Better Funds Law is effective July 1, 2009. Many of my clients are expressing concerns about back to back real estate closings and how to avoid long delays in funding while waiting for wire transfers to be received by the title company.  If a chain of two or more closings is happening with a single closing agent there won't be nearly the problem with getting acceptable funds. Once the closing agent receives wire transferred funds on the first transaction the proceeds from each successive closing will already be in the closing agent's escrow account and wire transfering will be unnecessary. If a chain of transactions is closing with more than one title company or closing agent then the first closing agent will need to wire transfer the seller's proceeds to the next title company.  

To minimize delays, I recommend that you try and schedule your closings on Tuesday or Wednesday mornings.  A Tuesday or Wednesday closing will be among the first ones to be worked on by the lender each week. Friday closings only get worked on after the previous days closings are completed. We find that many scheduled Friday closings get bumped back to later in the day or rescheduled for the following Monday. Closing Tuesday or Wednesday puts your deal near the front of the line. 

A closing that is completed by 10:00 a.m. or 11:00 a.m. will allow enough time for the closing agent to order the wire transfer to the next closing agent and for the wire transfer to be sent and received by the banks involved.  Successfully completing wire transfers involve a number of people and processes. The title company at either end has little or no control or influence over these people or processes. Some banks will process wire transfers immediately. Some banks do them in batches only two or three times a day. Over the years I've come to realize that no one I can talk with knows for sure when a wire transfer has actually been sent. When people tell me that they've sent the wire they almost always mean that they've just given it to the next person in the process.  

I am confident that John Bethell Title Company, Inc. will handle the logistics of this new law fairly well. Our bank processes wire transfers as they receive the requests. We receive email confirmation of wires transfers sent and received. We have a later cut-off than at most other banks. Much of the process is within our own control. Still, wire transferring will take longer than cutting a check to someone. The irreversible nature of wire transfers requires that we employ careful accounting procedures to prevent data entry, transcription or other errors; more procedures than we need when cutting checks. 

Scheduling your closings for earlier in the day and earlier in the week will allow for the money to get to where it needs to be when it needs to be there.

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Another post in my continuing series Ask the Title Guy.

We've prepared a Wire Transfer Information Kit for Realtors® that Tammy Walker is currently distributing. If you'd like one, please email me or leave a comment.

Beginning July 1, 2009 the logistics surrounding many Indiana real estate closings will become even more complicated. House Enrolled Act 1374 effectively requires that most funds received by a title company or settlement agent for a closing be wire transferred. Cashier's and certified checks will only be acceptable for amounts under $10,000. The Indiana Department of Insurance is the responsible agency for monitoring compliance with the law. Title agents that ignore this law risk licensing actions by the DOI.

The biggest concern my clients express is that complying with the new law will result in even more delayed closings. There are a lot of reasons why closings get delayed. Right now the most common reason is that the lender is unable to meet the scheduled closing date. Lately, about twenty-five percent of our closings are being rescheduled at the last minute due to loan approval issues. Until we have the lender's closing instructions and their approval of the HUD-1, we are unable to provide a firm figure to the buyers. And without a firm figure, the buyer of course, cannot initiate a wire transfer of funds. 

Here's a suggestion for avoiding a wire transfer induced delay. It won't work in all situations, but you may find it helpful. 

If there are two or more buyers they can each provide a cashier's check and avoid the wire transfer requirement if each of their respective shares of the funds needed for closing is less than $10,000. For example, if two buyers need $16,000 to close, each one can provide a cashier's check for $8,000. (I don't even think that it needs to be separate checks.) 

Be sure to check with your title company or settlement agent and make sure that this suggestion is acceptable to them. 

If the buyers each need more than $10,000 to close I strongly suggest that they wait to initiate their wire transfer until the exact amount is known. The law makes no provisions for providing some of the funds as wire transfers and some funds as cashier's or certified checks if more than $10,000 per party is needed. In my opinion requiring buyers to make two wire transfers is worse than waiting until you have an exact number. 

My next post will address how what time you schedule your closings for will help or hurt your chances for an on time closing

I hope that by now all Indiana Realtors®, mortgage lenders and other real estate professionals know about Indiana House Bill 1374. This new law, which is effective on July 1, 2009, prohibits title companies from disbursing real estate closings without funds over $10,000 having been wire transferred to the title company. I summarized the law in an earlier post here. 

During the month of May I watched our business with an eye towards how this new law might disrupt or enhance closings. Reviewing our deposit records I see that about one-half of our purchase closings would have required the buyer to wire us funds had this law been in effect last month. We've also talked with a number of banks to get an idea of the process that will be involved for buyers needing to wire their funds. 

The most important thing we can do is to prepare buyers and sellers. Managing expectations will go a long way towards keeping the closing a pleasant experience for all. Buyers should be made aware in advance that wiring their money may be required. Sellers must be cautioned that there's a possibility that funds may not be available immediately at the closing. 

The biggest change is for buyers, who often are going to be required to wire their closing funds. After talking with several banks it seems that three or four hours is the average time that (meaning some will take longer) it will take for a wire to be initiated by the buyer at their bank and received by the settlement agent's bank. Many banks have early afternoon cut offs for processing both outgoing and incoming wire transfers. This will result in some wire transfers not being completed until the following day. 

Instructions for wire transferring funds to our escrow account are now included with each title insurance commitment we issue. Give the buyer a copy of those instructions when you receive the commitment. We are distributing an information package to our customers that answer many of the questions that will no doubt come up. The package will help you explain the process to buyers and sellers. 

Don't lose sight of the fact that although this is a significant change for Hoosiers, over thirty other states have enacted some form of this type of law. Real estate transactions continue to take place in each of those states.  I'm certain that it won't take long before wiring funds to the settlement agent will be just another routine aspect of the transaction.

Over the next few days I will be sharing my thoughts on likely scenarios. Please check back regularly.

Here's an update on the situation with real estate taxes based upon actual knowledge and an informal telephone survey made yesterday.

The Monroe Country Treasurer mailed property tax bills Friday May 29^th. We are now using the 2008 pay in 2009 real estate tax amounts for all payments and prorations. The first installment of Monroe County taxes is due Friday June 26^th.

Greene County property tax bills are mailed and the first installment is also due June 26^th.

Owen County property tax bills were mailed in April and their due date was the statutory May 10^th.  Congratulations to Owen County-one of the few to be on time. Payments made after May 10th are subject to a ten percent penalty.

Lawrence County is awaiting approval of their tax rate. Once their rate is approved they will establish a due date for taxes. Until their rate is approved, we will continue to use 2007 pay 2008 tax amounts for all prorations.

Orange County is in the same situation as Lawrence County.

Brown County is still a year behind and holding.

I will continue to post updates as more information becomes available.

The amounts of Monroe County Property Taxes for the tax year 2008 payable in 2009 should be official this week. The county treasurer will mail the tax bills shortly thereafter and the first installment of property taxes will be due Friday June 26, 2009. 

We currently have access to the uncertified tax amounts and are disclosing those amounts in our title commitments. Once the state certifies the amount we will be able to pay those taxes at closing and prorate the taxes for this year using these new amounts. (Last year an entire township's taxes were incorrectly certified and it did lead to some problems for a few closings.) 

If both the buyers and sellers wish to prorate on the uncertified amounts, we're fine with that. We just need to have them sign our tax proration instructions reflecting that agreement.

I've reviewed a few files with uncertified taxes. It appears that there's little change from last year in the amount of the taxes on properties with valid homestead exemptions. I suspect that on other property types the news won't be quite so good. 

Once the new taxes are certified, we will obtain the new amounts for all our files going back to early March that we holding tax escrows on. We then cut checks to pay the first installment of taxes. After we're certain the payments have been applied correctly, which might not be for six to eight weeks, we will return any balances remaining in the escrow to the owner. 

Even though tax bills are again late this year, it's the earliest they've been out in quite a while. That's good news for buyers and sellers since taxes can be paid and prorated on current information.

My real estate closing and title insurance business remained challenging during the first quarter of 2009 but in a totally different way that the previous six months. Opened order counts were the best since the first three months of 2004.

The challenging part for us is not getting the preliminary title work finished-we're doing an excellent job with our turn times. Managing all those files waiting to close is getting tougher. While new orders are way up, the percentage of those orders closing is far less than at any time that I can remember. According to my clients, these orders aren't dead; the process to get to closing is just taking significantly longer due to a number of factors.

First and foremost, loan underwriting is taking a long time . . . a very long time.  Reluctant to add staff when this flurry of activity started in December, many lenders now find themselves chasing their workloads, unable to get control of the ever increasing volume. Adding to the drag is that every loan underwriter feels they'll be seconded guessed on any deal that goes bad so they're being really cautious; more worried about not making bad loans than losing good ones.

Our market also has its share of valuation and appraisal issues but not nearly to the extent as in other areas. Generally housing values in Bloomington and Monroe County are not really going up much lately, but they're not going down much either. I've heard of some deals where the lender required a second appraisal. Condominium appraisals are very tough right now. Especially in developments with non-owner occupied units.

Even if the industry learns to deal with the volume and tighter loan standards, there's another change on the way that will further retard the settlement process. During the second half of the year, lenders and the settlement services industry will begin to implement new procedures in order to comply with changes to the federal Real Estate Settlement and Procedures Act (RESPA) that become mandatory January 1, 2010.

A new form Good Faith Estimate and a new three page form HUD-1 Settlement Statement are major components of the changes. The RESPA changes mandate considerable accountability for lenders with regard to borrower's settlement costs. The accountability will surely result in a training curve for everyone in the settlement services business. That learning curve is not going to make things happen faster. I'll be posting more about these significant RESPA changes over the next few months, so be sure to check back.

In the current environment realtors®, lenders, buyers and sellers are well advised to anticipate that closings will be delayed. To minimize that possibility, buyers need to provide their lender with all requested information as soon as possible. Realtors, instead of writing a purchase agreement with the usual end of month closing date, consider a day in the middle of the month and earlier in the week. There'll be less competition for the loan underwriter's time and less chance that your deal will be delayed.

The mortgage mess is difficult to explain. There are lots of axes to grind. Many seeking to place blame. Many looking to absolve themselves of blame. No wonder it's hard to really understand what actually happened. The embed video here is the work of Jonathan Jarvis. Jonathan is a graduate student, not in finance, but in Media Design. He attends the Art Center College of Design in Pasadena, California.

It's most interesting to me that this video, the best explanation of market cause and effect that I've seen, is not the product of one of the many talking heads on CNN or CNBC or the Wall Street Journal or any well known financial media publication. It's the product of someone studying how to use new media to explain complex concepts. Jonathan, how Marshall McLuhan of you.

Jonathan gave me permission to pass this on in this post. He also asked that I mention the fine work done by John Levoff with the narration and Brandon Au who did the music. Thanks also to my friend Dave Wirshing who brought this to my attention over the weekend with a post on Twitter.

The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo. 

While looking at the video a second time, I remembered Alan Greenspan's famous "irrational exuberance" comment that preceded the dot com bust. The dot com bust pales in light of the current situation. So Alan maybe had it right after all - just wrong about the timing!

Jonathan took down the original web site to which he'd posted this video. It appears that it received so much traffic that Jonathon incurred several thousand dollars of expenses. Not easily assimilated into a graduate student's budget. You can show support for this excellent material by buying a t-shirt here.

I will certainly be showing this video to many questioning clients. Maybe you will to.

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.

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.