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.

Federal credit market stimulus is clearly evident when examining mortgage recordings in Monroe County in the first two months of 2009. What is also apparent are those parts of the market that are not benefiting from any government action.

The 729 total mortgages securing loans between $50,000 and $500,000 are the most in this dollar range in the first two months of any of the last seven years. Mortgages in this range tend to be overwhelmingly residential first mortgages. I believe that this increased activity is indicative of the fact that Monroe County homeowners are taking advantage of the lower interest rates resulting from various government actions that began in early December 2008. Judging from new order counts in my company, this trend is still continuing.

On the flip side, mortgages outside that range are down significantly. Mortgages under $50,000 fell 46 percent from year ago levels (195 then, 104 now). These mortgages historically have been primarily home equity credit lines or piggy back purchase seconds. This segment has steadily declined during the last two years. Dollar value of loans over $500,000 (primarily jumbo and commercial) declined over 60 percent from year ago levels (after factoring out one $40 million mortgage securing school bonds). Are the declines in these two market segments reflective of tighter credit standards for loans deemed more risky than high equity first mortgages? I think so.

Monroe County benefits from the lowest unemployment rate in Indiana. The community's primary employers are Indiana University, the health care industry and medical supply industry. All three are not immediately affected by the state of the national economy.

The market is not flooded with vacant foreclosed homes and good values exist in all price ranges. Property values in Monroe County are also faring better than most other places. The worst that can be said in this regard is that values are not current increasing. The Office of Federal Housing Oversight ranks Bloomington for 2008 as the 72^nd best market out of 292 nationally with an appreciation rate of 0.64 percent during last year.

Next month I'll look at the first quarter numbers for a variety of measurements including recorded deeds and foreclosures. If you'd like to be added to our mailing list and receive a complimentary copy of our monthly statistical package, please contact me or Tammy Walker through the link to our company home page.

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

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.

This is a final reminder that if you purchased a property in Indiana in 2008, there are only four days left (until December 30^th, since most county offices will be closed on the 24^th, 26^th and the 31^st) to file for your Homestead and other credits with your County Auditor. If you are living in the property as your principle residence, you are entitled to a Homestead credit.

Run - don't walk to the Auditor's office.

This credit will save you hundreds and possibly several thousands of dollars on next year's real estate taxes. At this late date do this in person. Don't trust the mail.

If you already filed for your credits, find your receipt and keep it in a safe place. In the event of a mix-up, the burden of proof will be on you to prove that you filed. Don't expect the County to cut you any slack. They won't. 

A couple of weeks ago we mailed Homestead Tax Credit reminders to each of our purchasers during the past year, about 800 in total. We received more than one-dozen calls from folks who had forgotten to file or not realized that they should file. All were quite appreciative that we took the time to remind them. I confess though, my primary motivation in doing the mailing is to avoid unpleasant phone calls after the tax bills come out next spring.

Our Closers explain this in every closing. There are usually two or three forms signed wherein the Buyer acknowledges that we've told them. Yet, human nature being what it is, people don't hear us or don't follow through.

When the tax bill comes, it's too late.

So don't wait any longer. Missing out on this will cost you plenty in extra real estate taxes.

Indiana Real Estate or Mortgage professionals please feel free to republish this post for your clients.